Complete Renewal with Core and Fair Housing (6 Hr)

Learning Objectives

Upon completion of this section, you should be able to:

• Identify the factors that influence home ownership.
• Identify various forms/types of housing.
• Describe the various types of estates in land and provide examples of estates in each group.
• Define fee simple, determinable fee, and fee simple subject to condition subsequent.
• Describe a conventional life estate and differentiate between remainder and reversion interests.
• Discuss separation of rights of possession and use under different forms of ownership.
• Define ownership in severalty.
• Define forms of co-ownership, including community property, joint tenancy, tenancy by the entirety, tenancy in common, dower and curtesy, and land trusts.
• Name and define the powers of government that may limit ownership of real property. Provide examples of typical restrictions under each.
• Define ways business organizations can own real property, including partnerships, joint ventures, corporations, cooperatives, condominiums, limited liability companies and partnerships, syndications, and real estate investment trusts.

Forms of Ownership

Home ownership is a big decision and, on an individual level, should be made after carefully considering its effect on a person's family, friends, and lifestyle. On a broader level, the housing market is affected by the supply of affordable homes and the amount of money people have for housing. Put simply, the market depends on the supply and demand for homes.

Many things affect the supply or demand of homes. On the supply side, credit availability affects how many homes builders can afford. The availability of land also plays a major role. Limited space makes it difficult to keep adding homes to the market. Finally, another factor is zoning, the governmental policy determining what can be built where. For example, if a local government rezones a neighborhood previously designated for lots (a piece/parcel of land) of 20,000 square feet to allow lots of 6,000 square feet, then the number of housing units that can be built increases.

Many factors also influence demand. First, demand for homes is driven partly by the amount of money available for housing. To clarify, it is not only residents' income that matters but the portion of all money available for housing. If the price of housing is high, it will offset some of the income people earn. In other words, more of the buyer's income will be needed for housing.

Also, interest rates affect the amount of money available for housing because lower interest rates decrease the cost of borrowing-allowing more people to afford the same home. Examples of other demand factors include housing prices, rent prices, the desirability of a neighborhood, commuting options, and proximity to job opportunities.

Types of Housing

Demand for homes generally can go up and down, as it can for different types of housing. The various types of housing all have unique characteristics. Let's look at different types:

• Single-family detached homes are most commonly associated with residential real estate. These structures are situated on land owned by the same owner as the structure.

• Single-family attached homes include townhomes, row houses, and condominiums. As the name suggests, they are attached to other units, sharing a common wall. Association dues typically exist to cover common expenses for communally owned areas, structures, and services.

• Condominiums are individually owned units in a larger building or complex. Condominiums may include detached homes that share a larger complex with communal facilities, such as a pool or clubhouse. They also have general rules that govern the use of the units and how the complex is managed. These general rules are called Covenants, Conditions, and Restrictions (CC&R).

• A housing cooperative is a corporation that owns the real estate and buildings. The corporation sells shares to members who are given the right to live in one of the units. An interesting difference between housing cooperatives and condominiums is that cooperatives select their members through screening.

• Houseboats and floating homes may or may not have a motor and can be moored permanently to a dock. Also, some will float permanently, and others will only float when the water level rises.

• Manufactured and modular homes are slightly different from one another. Both are prefabricated, meaning large portions (if not all) of the structure are built away from the property in a factory. 

• Mobile homes are by nature "mobile," which means they have to have a permanent chassis that allows them to be moved as a whole.

• Multi-family homes are a general category for multiple residents living in a single building. Multi-family includes condominiums and cooperatives.

• Mixed-use homes have retail space below and apartments or condominiums above, signifying "mixed use."

• Public housing includes property owned by the government. Public housing is meant to provide affordable rentals to eligible families and individuals.

• Military housing is a government-owned property designated for use by those serving in the military.

With so many housing types available, licensees will often focus on a few. For example, floating homes (houseboats) require special maintenance and inspection before purchase. Therefore, some licensees might choose not to sell houseboats because of the time required to learn the protocols. It's important to ensure you are well-equipped to handle clients' questions during the purchasing or leasing process.

Freehold Estates

A freehold estate is the exclusive right to use and enjoy the possession of land indefinitely without interference from others. A freehold estate must be land or some interest in land, possibly indefinitely. There are two general types of freehold estates: fee simple estate and life estate. These types are further broken down into the following.

• Fee simple estate
  • Fee simple absolute
  • Qualified fee estate
    • Fee simple subject to condition subsequent
    • Fee simple determinable
• Life estate (either the pur autre vie type or the ordinary type)
  • Estate in remainder
  • Estate in reversion

Fee Simple Estates

A fee simple estate represents the highest form of ownership and contains the entire "bundle of rights" and can be passed on to the heirs. All freehold estates that can be passed on to heirs, such as a fee simple estate, are classified as an estate of inheritance. It allows for enjoyment during the owner's life and carries the right to pass it on to heirs or successors after death. A property owner with a fee simple estate is entitled to full enjoyment of the property, limited only by zoning laws, deed or subdivision restrictions, or covenants. A deed is a signed legal document granting ownership. The property is freely inheritable and transferable.

The duration of this ownership is not limited and can be passed along in a will to the owner's heirs. While fee simple ownership represents the highest form of ownership, it is still limited by the four basic powers of government: taxation, eminent domain, police power, and escheat.

Fee simple estates carry the right to pass on property to the deceased person's heirs. Even though a property is a fee simple estate, it could be subject to escheat. Escheat is the legal doctrine where real property reverts to the government when a person dies without heirs or a will. Dying without a will is referred to as intestate. Conversely, when a person dies with a will, it is known as testate. Intestate and testate are commonly used phrases in real estate.

Other important vocabulary terms regarding the death of an owner of property include demise, devise, and descent. Demise is the act of transferring property through a lease or a will. Devise is extremely similar in that it is the act of transferring property by will. If a person dies intestate (without a will) but has legal heirs, its ownership will transfer through the law of descent, meaning the property will transfer by inheritance to the heirs of the person who died.

Let's break down each term and clarify its meaning in the context of the death of a property owner:

1. Demise:

   • Definition: The act of transferring property.

   • Context: This can be done either through a lease (where someone is given the right to use the property for a certain time) or through a will (a legal document stating who should receive the deceased's property).

2. Devise:

   • Definition: Transferring property specifically through a will.

   • Context: If a person explicitly states in their will that a certain property should go to a particular person or entity, that act of transferring is called a "devise."

3. Descent:

   • Definition: The act of transferring property through inheritance when a person dies without a will (intestate).

   • Context: When someone dies without a will, laws come into play that determine which relatives (heirs) will inherit the deceased's property. According to legal rules, this inheritance process is called "descent."

4. Intestate:

   • Definition: The state of dying without a valid will.

   • Context: If someone dies intestate, they haven't left behind a will to dictate how their property should be distributed. In this case, local laws will determine how the property is divided among the deceased's heirs.

5. Escheat:

   • Definition: The process by which property reverts to the government in the absence of legal heirs or a will.

   • Context: If someone dies without a will and has no legal heirs to inherit their property, the property may eventually revert to the government's ownership. This process is called "escheat."

In summary:

• If a person has a will and specifies how a property should be transferred, it's a devise.

• If a person dies without a will but has legal heirs, the property transfers by descent.

• If a person dies without a will and has no legal heirs, the property may eventually escheat to the government.

It is important to set a base of knowledge for when property is passed on through a will, without a will, and through the laws of descent because the ability to pass property to others after death is a key differentiator in the various types of estates.

Moving back to fee simple estate, other names used for fee simple estate are fee and fee simple absolute. When a grantee receives title in fee simple, it is assumed to be a "fee simple absolute estate (unconditional)." However, there is also a different type of fee estate besides fee simple absolute, known as a qualified fee estate.

Qualified Fee Estates

A qualified fee estate is a fee simple estate that is qualified by a condition or event happening. A qualified fee estate is also known as a "conditional fee estate" or a "defeasible fee estate." The owner of a qualified fee estate is subject to the conditions of the estate and, therefore, termination of their interest. If the event occurs or the condition is met, the interest in the property will revert to the prior owner.

Let's look at an example of a qualified fee estate.

Example: 

Aunt Sue grants property to her niece, Mary, so long as Mary attends college. If Mary drops out of college, the property will automatically revert to Aunt Sue.

Qualified fee estates come in two types: fee simple determinable and fee simple subject to a condition subsequent. The example of Aunt Sue is a case of fee simple determinable. Fee simple determinable ends automatically if a condition is not met. Typically included is the phrase "as long as," "until," or "during." Let's consider one more example of fee simple determinable:

Example: 

John grants his son Bill an estate to a property during the term of the current President of the United States. When the current President of the United States leaves office, the property will automatically revert to John.

In contrast, with a fee simple subject to condition subsequent, the estate does not revert to the grantor automatically if a condition is not met. Instead, the grantor must take action to end the estate.

Example: 

Bonnie grants an estate to Tom on the condition that he continues to raise livestock on the property. If Tom discontinues raising livestock on the property, the property will not automatically revert to Bonnie unless Bonnie takes action to end the estate.

Next, we'll discuss the second type of freehold estate: life estates.

Life Estates

A life estate is an estate for the lifetime of one or more persons. The life could be the person who was granted the life estate (called an "ordinary life estate"), or it could be another person's lifetime. A life estate based on a third party is called a life estate pur autre vie. As a result of the estate not being indefinite, it conveys fewer possessory rights than a fee simple estate.

Example 1: 

John gives a life estate to Kelly based on the life of Laura. Kelly only has a life estate so long as Laura is alive. (Laura is the third party.) So, Kelly's life estate interest is current; it is not a future interest.

Example 2: 

Ann conveys a life estate to Paul based on the life of Troy. What is the status of the life estate if Paul dies before Troy? In this question, Paul, or Paul's heirs, would have a life estate to the property so long as Troy was alive. It's pur autre vie, based on the life of another.

The life estate beneficiary is the life tenant, who can use and enjoy the property in full until the property is legally transferred at the end of the measured life. Along with the rights of use and enjoyment, the life tenant is responsible for the property's taxes, insurance, and maintenance.

An overlooked right of a life tenant is the ability to rent the property to others. The rent-when the life tenant has rights to the property-is for the life tenant's benefit, not the person granting the life estate.

Life estates convey a property for a person's lifetime; therefore, at the end of that life, the estate will be passed to another person. It can be done in two ways: an estate in remainder or reversion.

• Estate in remainder means the grantor of an estate specifies that the property will go to another person (a third party) upon the death of the life tenant. The third party is referred to as a remainderman.

Example: 

Brian gave Steve an estate for the term of Steve's life. After Steve's death, the property is then given to Erin.

• Estate in reversion means the grantor of an estate specifies that the grantor will get the estate back after the life tenant.

Example: 

Brian gave Steve an estate for the term of Erin's life. Upon Erin's passing, Brian regains ownership.