Who owns the house?

If you’ve ever sat through a real estate closing, you’re well acquainted with the sheer volume of paperwork that it takes to complete the sale and purchase of real estate. You’re also probably well acquainted with those fancy sticky tabs indicating where to sign without having to read anything. In practice, blindly zipping through a stack of documents filled with complex legal jargon turns what would be an excruciating afternoon skimming through the driest text you’ve seen since reading Beowulf in high school to about an hour of repetitive strokes of the pen. After all, these documents were prepared by professionals whose job it is to make sure everything is in order and properly drawn up, right?

Considering that the paperwork was drafted by a human being and human beings often make mistakes, another look through the paperwork with a fresh set of eyes is never a bad idea. Proofreading aside, the practice of blindly signing complex real estate documents seems to create a false sense of simplicity regarding the documents in question, especially when it comes to the deed transferring ownership of the property.

The deed lists the “grantor(s)” or people transferring the property, and the “grantee(s),” or people who are receiving ownership. Seems simple, so if you need to transfer the deed to the property at some point down the road, all you need to do is copy the same deed and make some changes to the names. Or so it would seem, but there can be wildly different outcomes down the road depending on the precise language appearing in the deed, specifically when it comes to the grantees.

It first helps to understand the deed serves two essential functions. It identifies what exactly is being transferred and to whom it is being transferred.

The Function of a Deed

In terms of what is being transferred, a legal property description is used to specify the property itself being transferred. Other language indicates what percentage of the property is being transferred and whether the transfer is outright or is otherwise restricted in some way. You might, for instance, see something referred to as a “life estate,” which transfers the property to particular individuals for the remainder of their lives. That’s at least one example where the person receiving an interest in the property does not involve an outright transfer. There’s a lot to unpack when it comes to deeds that don’t transfer complete ownership to the recipient, but generally, most deeds deal with an outright transfer of at least some, and in many cases, the entire property in question.

However, the most common issue that I have seen over the years, specifically when one owner of a piece of real estate dies, is how the grantees have been listed on the deed.

The Types of Ownership

Generally speaking, there are four types of ownership relating to the outright transfer of real property: Fee simple; Tenants in Common; Joint Tenants with Rights of Survivorship; and Tenants by the Entireties.

FEE SIMPLE

Fee Simple is the most straight forward form of outright ownership of a piece of real property. One individual owns the property outright, and when the owner dies the property becomes part of that individual’s estate, with some exceptions mostly related to the homestead provision in the Florida Constitution.

TENANTS IN COMMON

Tenants in common means that more than one person owns a piece of property. The owners’ interest can be different percentages as well. For example, while two owners of the same property could have 50/50 ownership of a home that is held as tenants in common, they could also divide that property unequally, such as 75/25.  Additionally, there is no limit to the number of people who can have an ownership interest in the property, although larger numbers of owners on a single piece of property tend to lead to more legal and practical issues alike.

JOINT TENANTS WITH RIGHTS OF SURVIVORSHIP

Joint tenants with rights of survivorship can be used when there are two or more owners of the property and creates an automatic transfer of an ownership interest in the property when a particular owner dies. For example, if there are two owners with rights of survivorship and one of the owners dies, the surviving owner will automatically end up with complete ownership of the property. If there are more than two owners, the interest of the deceased owner will pass in equal shares back to the remaining owners who survive.

To create a deed that passes the property to multiple owners as joint tenants with rights of survivorship, all the owners will need to come into possession of the property by deed at the same time. Additionally, they must take equal shares in the property when the deed is executed.

TENANTS BY THE ENTIRETIES

Tenants by the entireties is exactly like joint tenants with rights of survivorship in most regards, except it’s reserved for two people who are legally married at the time of the transfer and are both transferred the interest at the same time. The additional flexibility in tenants by the entireties comes from the fact that the law in Florida presumes married spouses appearing on the face of the deed own the property as tenants by the entireties regardless of the language that is used in the deed itself. Although it is still recommended that there is some mention that the individuals are married in the language of the deed.

SPEAKING OF LANGUAGE

The question becomes how to understand what type of ownership has been transferred and what the implications might be if a joint owner of the property were to suddenly pass away. Assuming co-owners of a piece of property are not married, a deed simply stating multiple grantors are deeded the property will have the effect of transferring equal parts ownership to each owner but will not result in the transfer of one owner’s interest to the other in the event of death. Instead, the deceased owner’s interest will become part of their estate and will pass to whoever might be named in their will, or as dictated otherwise under probate law.

To ensure that the property is transferred by survivorship, the law in Florida requires clear intent on the face of the deed that the property is being transferred to joint tenants with rights of survivorship. This is generally accomplished by placing the language “as joint owners with rights of survivorship,” or similar language after the names of the grantees appearing on the deed. As mentioned before, it’s also important the interest being transferred is in equal shares to the grantees.

One of the most common problems that I come across is with incorrect language, or for that matter, lack of language in a deed prepared by an individual unfamiliar with the law. Take for example a situation where a parent is considering the transfer of their home when they die. Many married couples rely on the family home being held as tenants by the entireties as mentioned previously, but in the event that the person is not married, divorced, or perhaps the surviving spouse in the marriage, there tends to be a strong desire to make sure their children, or whoever they want the property to go to on their death, don’t need to go through the probate process to obtain title to the home. For many, the idea of adding an adult child to the home by using a quit claim deed is attractive, especially when they think this will avoid complications with title when they die.

Consider the following example:

Ms. Smith was married to her husband for many years. After her husband passed away, she found herself dealing with an overwhelming amount of paperwork to make sure that everything from her husband’s estate was settled. She filled out claims forms for insurance, updated joint bank accounts, and even had to hire an attorney to open probate proceedings for a few small assets that had not been accounted for by her husband. Ms. Smith’s experience was rather frustrating. She was told different advice by different professionals about things she didn’t understand and that no one really took the time to properly explain.

Because of her experience, Ms. Smith talked to her daughter about avoiding probate and making sure that all the children received a share of the home and other assets if Ms. Smith died. Ms. Smith does some research on estate planning, but most of what she finds is overly complicated and doesn’t seem necessary. After all, the only assets are the house, a car, and a few bank accounts.

After looking at a few articles online and speaking with her daughter, Ms. Smith decides that if she can add her daughter to the assets, then her daughter can handle taking care of everything if Ms. Smith dies without having to go through probate. Ms. Smith trusts her daughter, so this seems like a perfect solution.

Ms. Smith’s daughter found some forms online to draft a quit claim deed. She copied everything from the original deed from her parents’ house, except she changed the language to make Ms. Smith the grantor, and Ms. Smith and herself the new grantees, so they will jointly own the property. However, there was no language in the new deed to indicate Ms. Smith and her daughter intended to be joint tenants with rights of survivorship.

A number of years later, after drafting and recording the deed, Ms. Smith passed away. Ms. Smith’s daughter followed the instructions left by her mother and listed the home so it could be sold for the siblings to split the proceeds. Only then was it brough to the daughter’s attention that the half interest which belonged to Ms. Smith became part of Ms. Smith’s estate and required probate before the home could be sold.

Because of a few missing words, the deed Ms. Smith’s daughter helped to create is viewed by the law as tenants in common and not joint tenants with rights of survivorship. That one small omission has completely changed the intended outcome and likely created a few new issues at the same time. 

This comes back to the complacency that I was alluding to earlier in this article. The process of drafting the deed doesn’t seem terribly complicated, especially when it seems like all you need to do is copy most of the language from a previous deed and change a few names and addresses. You might be surprised how many people decide to go this route and how many unwittingly cause more complications rather than resolve any real issues.

I can’t say that I blame them. It was certainly with the best intentions. Not to mention there are plenty of reasons someone might avoid seeking professional assistance with the overwhelming number of products and advice from “financial professionals” I see marketed to the general public on a daily basis. The number of interactions I have with people who inform me a financial guru on television has suggested everyone needs some convoluted and expensive estate planning scheme is perplexing. Not to mention it’s even more perplexing when the same television personalities sell all types of form building software implicitly suggesting these documents can be created without an in depth knowledge of what they mean, or their legal effect.

A FEW SUGGESTIONS

Deeds appear to be deceptively simple but are much more complicated than appear at first glance. The example given above is only one of many different issues that can occur without proper understanding of Florida laws pertaining to real estate. Transfers of real estate both during your lifetime and in death are a proverbial minefield of legal issues, and it’s wise to seek some professional advice to ensure any deed you sign accomplishes what you need it to do.

Lawyers can certainly be expensive, but the cost is all relative to what you need to accomplish. Administering a probate estate can cost thousands of dollars, so a few hours of time with an attorney might result in money saved down the road. Not to mention there can be circumstances where an incorrect deed may result in property being liquidated to pay back a decedent’s creditors which could otherwise be avoided. This is particularly the case when the individual who is intended to receive the property does not qualify for the inurnment of creditor protections under the Florida Constitution’s homestead provisions.

To avoid unnecessary expenses, be clear with your lawyer about what it is you want to accomplish. Don’t be afraid to ask questions. There might be plenty of salespeople out there trying to turn a quick buck, but in my experience, there are plenty of thoughtful and professional lawyers who will take the time to clearly explain what needs to be done and walk you through the issues to consider. If someone is unwilling to take time to explain what they are doing and why, you may need to find someone else, but I can assure you for those who won’t, there are plenty of good lawyers who will.