Modern Real Estate Practice in Pennsylvania Fourteenth Edition

• Learning objectives – Differentiate among the characteristics of various forms of ownership

• Choice of ownership has implications – Ability to transfer real estate –

• Forms of ownership – Severalty – Co-ownership – In trust © 2020

• Ownership in severalty – One person or one corporation – Owner has

• Co-ownership – Title held by two or more persons • • Tenancy

• Forms of co-ownership – Tenancy in common – Joint tenancy – Tenancy

$• Tenancy in common – Ownership by two or more • Undivided fractional$

In Pennsylvania – If deed does not stipulate tenancy, two or more owners become

• Joint Tenancy – 4 Unities of PITT – Unity of Possession —

• Creation – Title acquired by one document or deed – Deed executed

• Joint tenancy with right of survivorship – Surviving tenants acquire the interest

In Pennsylvania – Transfer is automatic at death (supersedes a will) – Right of

• Terminating joint tenancy – Can be terminated by operation of law •

• Termination of co-ownership by partition suit – Legal way to dissolve partnership

In Pennsylvania – Special form of joint tenancy between spouses – Automatically created when

• Termination of tenancy by the entirety – Husband wife control ownership, transfer,

• Terminating tenancy by the entirety (J’s DAD) – Judgment sale (tenancy dissolved)

In Practice • Can combine interests • One building can be owned as follows:

• Community property rights – Separate property: owned by one spouse before a

• Joint tenants: usually an emotional tie • Tenants in common: usually a

• Trusts: One person transfers ownership to someone else for the benefit of

• Purposes of trusts: – College education – Prevent unanticipated use of funds

• Types of trusts – Living Trusts — agreement during property owner’s lifetime

• Land trusts In Pennsylvania – PA permits the creation of land trusts

• Trust deeds – Deed in trust — creation of a living, testamentary,

Ownership of Real Estate by Business Organizations

• • Partnerships Corporations Limited liability companies (LLC) Syndications © 2020 Kaplan, Inc.

• Different forms for business purposes: – Ownership by the entity itself –

• Partnerships – Association of two or more business co-owners – All share

• General partnership – All partners participate in management – May be held

• Limited partnership – Includes general and limited partners – General partner runs

In Pennsylvania – Common law says that partnerships cannot own real estate – In

• Dissolution of general partnership – Unless the partnership agreement makes provisions for

• Corporation – A legal entity (A non-natural person) – Exists in perpetuity

• Corporate activities – – Individuals invest by purchasing stock Stock is personal

• Limited liability company (LLC) – Combines features of a corporation and a

Condominiums, Cooperatives, and Time-Shares

• Ownership alternatives • Residential, commercial, industrial markets • Efficient use of scarce

• Condominium ownership (not style of building) – Fee simple ownership of the

• Condominium ownership – Common elements • Land, courtyards, hallways, lobbies, elevators, etc.

• Residential condominium architecture may include: – – – Highrises Town houses Patio

• Condominium ownership – Deed conveys fee simple ownership of the living unit

• Condo operation and administration – By-laws create an association (of unit owners)

• Condominium fees – Unit owners responsible for common elements – Association collects

• Condominium assessments – Special assessments may be required for repairs or maintenance:

Creation of a Condominium in Pennsylvania • Uniform Condominium Act (federal) • Owner must

• Uniform Condominium Act of PA – Changes made in January 2005 –

In Pennsylvania • Condominium Conversions – Rental property can be transferred to condos –

• Condo conversion – New owners must get two-year warranty against structural defects

In Pennsylvania – Condominium Sales • PA Uniform Condominium Act requires that buyers be

• Cooperative ownership – Title is held by a corporation – Corporation offers

• Cooperative operation and management – Determined by corporation’s bylaws – Shareholders control

• Cooperative operation – Tenant responsible for paying the mortgage on the cooperative

• Time-share ownership – Fee simple interest in time-share estate (real) – Right

• Vacation ownership (holiday clubs) – Flexible opportunities – Fee simple or right-to-use

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Modern Real Estate Practice in Pennsylvania Fourteenth Edition Unit 6: Forms of Real Estate Ownership

• Learning objectives – Differentiate among the characteristics of various forms of ownership – Describe the ways in which business organizations may own property – Explain differences in condominium, cooperative, and time-share forms of ownership © 2020 Kaplan, Inc. 2

Overview

• Co-ownership – Title held by two or more persons • • Tenancy in common Joint tenancy Tenancy by the entireties Community property • Characteristics do not affect use or occupation of the property • Differences arise: alienation (disposition or conveyance) © 2020 Kaplan, Inc. 7

$• Tenancy in common – Ownership by two or more • Undivided fractional$

• Tenancy in common – Ownership by two or more • Undivided fractional interest • Owners have unity of possession, not interest • Ownership interest, not property, is divided – Can be equal or unequal interest – Can sell, convey, mortgage, transfer without approval – At death, ownership interest passes to devisee © 2020 Kaplan, Inc. 12

• Joint Tenancy – 4 Unities of PITT – Unity of Possession — undivided right to possession – Unity of Interest — equal ownership interests – Unity of Time — acquire interest at the same time – Unity of Title — acquire interest by the same document © 2020 Kaplan, Inc. 14

• Creation – Title acquired by one document or deed – Deed executed and delivered at one time • Deed conveys equal interests to all parties • Parties hold undivided possession of property © 2020 Kaplan, Inc. 15

In Pennsylvania – Transfer is automatic at death (supersedes a will) – Right of survivorship must be clearly stated – A and B as joint tenants WROS, not as TIC – Otherwise, treated as tenants in common © 2020 Kaplan, Inc. 17

• Termination of co-ownership by partition suit – Legal way to dissolve partnership when parties do not dissolve voluntarily – Will try to physically divide – Otherwise, must be sold – Used with JT-WROS and TIC © 2020 Kaplan, Inc. 19

In Pennsylvania – Special form of joint tenancy between spouses – Automatically created when owners are husband wife – Inherent right of survivorship – Both must sign documents to convey property © 2020 Kaplan, Inc. 20

• Termination of tenancy by the entirety – Husband wife control ownership, transfer, indebtedness as a unit – Cannot encumber or convey individual interest – Automatic ownership at death of spouse • Also can be terminated by the following: – Agreement (execution of a new deed) – Divorce (creates a TIC) – Court-ordered sale © 2020 Kaplan, Inc. 21

• Terminating tenancy by the entirety (J’s DAD) – Judgment sale (tenancy dissolved) – Death (survivor inherits in severalty) – Agreement (execute a new deed) – Divorce (parties become tenants in common) © 2020 Kaplan, Inc. 22

In Practice • Can combine interests • One building can be owned as follows: – Split as TIC • A couple owns half as tenants in the entirety • Two, unmarried people own as joint tenants on the other half – Interests can vary © 2020 Kaplan, Inc. 23

• Community property rights – Separate property: owned by one spouse before a marriage, includes gifts and inheritances during marriage — only one signature required (PA) – Community property is that which both spouses acquired during the marriage (both must sign) • On death, half owned by other spouse • Other half distributed according to will In Pennsylvania – PA does not recognize community property • Marriage composed of equal partners — community property states • In PA, a marriage consists of one entity © 2020 Kaplan, Inc. 24

• Trusts: One person transfers ownership to someone else for the benefit of a third person. – Trustor: the person who creates the trust – Trustee: the owner and manager of the property for the beneficiary; has a fiduciary responsibility – Beneficiary: the person who receives the benefits of the trust © 2020 Kaplan, Inc. 26

• Purposes of trusts: – College education – Prevent unanticipated use of funds – Preserve anonymity of real estate purchasers © 2020 Kaplan, Inc. • Trustor (or settlor) can be the following: – Person or entity – Trust company – REIT (real estate investment trust) 27

• Types of trusts – Living Trusts — agreement during property owner’s lifetime – Testamentary Trusts — agreement by will after property owner’s death – Settlor (trustor) conveys property to trustee to care for asset(s) • Trustee is compensated • Beneficiary is cared for by trustee © 2020 Kaplan, Inc. 28

• Land trusts In Pennsylvania – PA permits the creation of land trusts – Real estate is only asset – Title conveyed to trustee, benefits to beneficiary – Public records do not usually name the beneficiary (used for secrecy) – Beneficial interest can be transferred by assignment – Property pledged as security without mortgage © 2020 Kaplan, Inc. 29

Ownership of Real Estate by Business Organizations

• Different forms for business purposes: – Ownership by the entity itself – Ownership directly by its members • Legal implications for taxes and securities • Legal, tax, and securities advisors play an important role on developing effective methods of ownership © 2020 Kaplan, Inc. 33

• Limited partnership – Includes general and limited partners – General partner runs the business – Limited partners do not manage the business • Each liable for only to the extent of individual investment • Allows investment with smaller amounts of capital • Popular method of organizing investors in real estate projects © 2020 Kaplan, Inc. 36

In Pennsylvania – Common law says that partnerships cannot own real estate – In PA, under the Uniform Partnership Act, partnerships can own real estate – Likewise, under the Uniform Limited Partnership Act, limited partnerships can own real estate – Creates different tax situations for each partner © 2020 Kaplan, Inc. 37

• Dissolution of general partnership – Unless the partnership agreement makes provisions for the following: • Death of partner • Withdrawal of partner • Bankruptcy of partner • Organization continues in most limited partnerships © 2020 Kaplan, Inc. 38

• Corporation – A legal entity (A non-natural person) – Exists in perpetuity – Can own real estate – Chartered under state law • Managed by a board of directors • Charter allows or limits purchases of real estate © 2020 Kaplan, Inc. 39

• Corporate activities – – Individuals invest by purchasing stock Stock is personal property Shareholders have no direct ownership in real estate Shareholder liability limited to amount of investment • Corporate profits usually subject to double taxation unless an S corporation – S corporation • Legal entity created to avoid double taxation • Profits to shareholders are taxed • Profits of S corporation are not © 2020 Kaplan, Inc. 40

• Limited liability company (LLC) – Combines features of a corporation and a partnership, created by the Limited Liability Company Act – Owners are members rather than partners or stockholders – Minimizes the personal liability of a partnership – Offers tax advantages over a corporation for federal taxes © 2020 Kaplan, Inc. 41

Condominiums, Cooperatives, and Time-Shares

• Ownership alternatives • Residential, commercial, industrial markets • Efficient use of scarce building land – Lower cost for lot development – Less outlay for construction per unit – Savings in maintenance and heating bills © 2020 Kaplan, Inc. 43

• Condominium ownership (not style of building) – Fee simple ownership of the layer of airspace – Specified share of undivided interest in common elements – Created under Horizontal Property Acts • Residential, commercial, industrial © 2020 Kaplan, Inc. 44

• Condominium ownership – Common elements • Land, courtyards, hallways, lobbies, elevators, etc. • Pool, recreation area, golf course, tennis court – Owned in form of tenants in common (no right to partition) © 2020 Kaplan, Inc. 46

• Residential condominium architecture may include: – – – Highrises Town houses Patio homes Garden apartments Single detached houses • Recognize if the property is a town house (separately-owned lots) or a condominium • Not limited to residential dwellings: commercial, office, parking condos © 2020 Kaplan, Inc. 47

• Condominium ownership – Deed conveys fee simple ownership of the living unit and proportionate undivided interest in the common areas – Title held by one or more in severalty, by the entirety, as joint tenants, or as tenants in common – Owners can sell (association may reserve right of first refusal), lease, give it away, or leave it to heirs • Each unit is a financial entity – Receives an individual tax bill – Foreclosure of adjoining unit has no impact on other units © 2020 Kaplan, Inc. 48

• Condo operation and administration – By-laws create an association (of unit owners) to manage the condominium: – Maintain, repair, and clean common elements – Enforce by-laws (aka, covenants, conditions, and restrictions — CC&Rs) – Maintain insurance (fire, extended coverage, liability) • Governed by board of directors (elected) – Administers bylaws following Uniform Condominium Act) – Manages finances – Can hire professional management company © 2020 Kaplan, Inc. 49

• Condominium fees – Unit owners responsible for common elements – Association collects funds for maintenance and special assessments – Fees may be collected monthly, quarterly, or annually – Fees may vary based on size of unit – Unpaid fees may become a lien against a unit or can even be enforced by foreclosure © 2020 Kaplan, Inc. 50

• Condominium assessments – Special assessments may be required for repairs or maintenance: • Major repair • Capital improvement • New roof or recreational facilities – Larger units pay larger assessments – Unpaid assessments can become a lien © 2020 Kaplan, Inc. 51

Creation of a Condominium in Pennsylvania • Uniform Condominium Act (federal) • Owner must execute and record a declaration of condominium: – – – Legal description of units and common elements Bylaws governing operation of owner’s association Survey Drawings and legal descriptions of each unit Restrictive covenants controlling ownership © 2020 Kaplan, Inc. 52

• Uniform Condominium Act of PA – Changes made in January 2005 – Affected: • Governance by boards of directors • Management and operation • Collection of fees and assessments • Buyers must be aware of HOA CC&Rs © 2020 Kaplan, Inc. 53

In Pennsylvania • Condominium Conversions – Rental property can be transferred to condos – Existing tenants have some protection: • Must be properly informed • Given ample time to consider purchase • Allowed to remain as tenants for a period of time (protects leases and rents) © 2020 Kaplan, Inc. 54

• Condo conversion – New owners must get two-year warranty against structural defects – Must receive report from independent architect or engineer detailing age and condition of property • Unit sales: existing condominiums – Owner must provide prospective purchaser with a resale certificate and condominium documents. – Buyer can void AOS within five days after receiving certificate. © 2020 Kaplan, Inc. 55

In Pennsylvania – Condominium Sales • PA Uniform Condominium Act requires that buyers be informed about fees and restrictions • Must receive public offering statement 15 days before sales contract is signed (or receive 15 days to review after receipt) © 2020 Kaplan, Inc. 56

• Cooperative ownership – Title is held by a corporation – Corporation offers shares of stocks for sale (pieces of paper granting access to a unit) – Create proprietary lease (personal property) © 2020 Kaplan, Inc. 57

• Cooperative operation and management – Determined by corporation’s bylaws – Shareholders control property and its operation – Board of directors may reserve right to approve a shareholder – Tenant-owner may be required to sell shares back at original price (corporation benefits from profits) © 2020 Kaplan, Inc. 58

• Cooperative operation – Tenant responsible for paying the mortgage on the cooperative – Payment to maintenance and repair of common areas – Insurance policies (liability, fire, etc. ) • Collected through monthly fees © 2020 Kaplan, Inc. 59

• Time-share ownership – Fee simple interest in time-share estate (real) – Right to use a time-share use (personal) – Purchaser receives the right to occupy a certain unit for a specified time frame each year – One week being the most common • Campground membership – Similar to time-share use – Use often limited by weather and access © 2020 Kaplan, Inc. 60

• Vacation ownership (holiday clubs) – Flexible opportunities – Fee simple or right-to-use In Pennsylvania – PA Real Estate Licensing and Registration Act Licensure Requirements • Time-share salesperson • Campground membership salesperson © 2020 Kaplan, Inc. 61