Ways of Owning Real Property

Real property may be owned by one or more persons. Ownership may be classified by 1) type of estate and 2) if one or more people are co-owners, by type of co-ownership. Estates are a means of measuring ownership in terms of duration or a specific length of time. Leasehold estates involve a right to possession and use of property for a designated limited time period. Freehold estates are of potentially infinite duration or last for an unpredictable length of time. Types of freehold estates include fee simple ownership, life estate, fee simple determinable, and fee simple estates subject to condition subsequent.
•     Fee    Simple     Ownership. Ownership of real estate in fee simple gives an unrestricted right to sell, mortgage, or dispose of the property during life or at death. It is the most complete estate that can be owned in land and includes all of the privileges of land ownership. All other types of freehold estate involve a subdivision of a fee simple estate into two estates: a present interest and a future interest.
•     Life    Estate. A person with a life estate in a farm who has the use of the farm during his or her lifetime is called a life tenant. Although the life tenant can sell the life estate, the buyer would have ownership rights only as long as the original life tenant lived. These rights do not become part of the life tenant’s estate. At the death of a party holding a life estate, the person or persons owning the reversion or remainder interest (all rights not held by the life tenant) would come into possession of the property. If the original owner of the property retains the right to possess the property after the death of the life tenant, this interest is known as a reversion. If the original owner gives the future ownership right to someone else, the future interest is called a remainder and the holder is the remainderman. The owner of a reversion or remainder interest can sell or mortgage his or her interest prior to the death of the life tenant, but the buyer could not obtain present possession of the property until after the death of the life tenant.
In the case of homestead property, rights similar to those under a life estate are given to a surviving spouse.
The surviving spouse may continue to occupy the homestead and receive the income from the property to the exclusion of all adult heirs. The surviving spouse’s interest is similar to a life estate in the homestead, and it would endure so long as the surviving spouse occupied the homestead as his or her home. However, in the case of homestead property, the surviving spouse’s interest is personal and may not be sold or transferred to anyone else.
Conflicts sometimes arise between the life tenant and the remaindermen. The life tenant does have some legal responsibilities that help protect the interests of the remaindermen. The life tenant must avoid waste, which is the unreasonable use of the land that results in injury to the land. The injury must be permanent and affect the future possession and condition of the land. The life tenant must also pay ad valorem taxes and interest on mortgages on the property. The life tenant cannot force remaindermen to contribute to the cost of improving the property unless they consent to do so, even though the remaindermen may benefit from the improvements.
The value of the property in which the owner has reserved a life estate must be included in the estate of the life tenant. However, if the life estate is acquired by gift, inheritance, or will the value of that property would not be included in the life tenant’s estate.
• Fee    Simple    Determinable. This type of estate arises when property is conditionally transferred for a specific use but will revert back to the original owner or will go to the designatee if it ceases to be used for that purpose. For example, property might be given for use as a church but the grant might specify that if the property ceases to be used as a church, the property will once again belong to the original owner. In such a case, the church owners would have a fee simple determinable estate and the original owner would have a possibility of reverter.
• Fee    Simple    Estates    Subject    to    Condition    Subsequent. These estates are very similar to fee simple determinable estates. The chief difference is that in the case of a fee simple determinable estate, the property ownership automatically goes to the future interest holder if the condition is broken, whereas in this type of estate, the future interest holder must take some action to gain title to the property after the condition is broken. If the interest holder fails to take any action, the holder of the Fee Simple Estate Subject to Condition Subsequent will continue to own the property. In this type of estate, the future interest holder has a right of reentry if the original owner retained the future interest or a power of termination if the right was given to someone else. Great care must be taken in creating either a fee simple determinable estate or a fee simple estate subject to condition subsequent to ensure that the wishes of the grantor are fulfilled.