sch_logo_tst.gif (2290 bytes)
90-Hour Pre-Licensing Course.

9628 N. May Ave.
OKC, OK 73120

This course is set up in sequence. You must complete each Chapter and TEST to continue to the next chapter. The link to the Test is at the end of each chapter. The TEST will open in a new window. Once you have completed the test, click the submit button. If you have completed the questions with a passing score, the Answers and Explanation page will open. This is where you will find a link to the next chapter. If the Answer page does not open, go back over the questions again to check your answers.
Your Internet Browser must be JAVA capable and the JAVA logging and JAVA options must be enabled.

You must Bookmark your progress or Add to Favorites.

Use Ctrl+D on keyboard or your menu options

MAC USERS - use Command + D on keyboard or your menu options

You can create a New Folder named Basic Course to store these bookmarks in. You are NOT downloading the information, just creating a shortcut to get back to where you left off.
  • Questions are answered through our Student Forum
    • Please include the Course and Chapter Number in the "Subject Line".
      • Example: Broker - Chapter 3 - Question 28.
  • Address to our Student Forum; http://www.mbsre.com/mbsreforum/
    • The forum is on our new web server at MBSRE.com.
    • That is short for Marie Burroughs School of Real Estate
  • Instructors are available Monday through Friday from 9AM - 5PM.

CHAPTER THREE

 RIGHTS AND INTERESTS IN REAL ESTATE
(3 HOURS)

PROPERTY OWNERSHIP

The Allodial and Feudal Systems.

The system of property ownership in most of the United States had its beginning in the pre-colonial days in England. Through the centuries, the forms of land ownership have evolved through common law from ownership of land vested in the sovereign (Feudal System) to the Allodial System, free and full ownership by individuals of right in land. Technically, no one owns real estate, only the rights relative to its use. The concept of private property ownership as the basis for personal liberty is diminishing as greater emphasis is placed on the needs of society as a whole.

One of the most significant governmental actions affecting property in Oklahoma was the decision of the Continental Congress to sell to private owners the rights of parts of the vast territories acquired as a result of the Revolutionary War. A committee worked out a plan, largely attributed to Thomas Jefferson, for locating and selling land. The Land Ordinance of 1785 established the Rectangular Survey System and guaranteed ownership in fee simple. The government described all public lands by the rectangular method before disposing of those lands through allotment, sale or homestead. The ordinance also provided that Section 16 and in some instances, Section 36, of each township be designated by law to be used for schools.

The establishment of the individual rights to own real property resulted in the creation of estates in land by which ownership interest could be divided among several individuals. Real property interests can be characterized in terms of the rights, privileges, powers and duties which may accompany them. Although persons involved in the real estate industry may not encounter all of these estates in land, it is necessary to understand the various interests which are possible and the limitations associated with them.

Interests in real property under the Allodial System can be possessory or nonpossessory. Possessory interests are those by which the owner has the physical control of land that can be enjoyed by a person. Nonpossessory interests include liens, encumbrances, easements, etc., rights which are valuable but which do not include any present right to possess or occupy the real property.

Possessory estates (corporeal rights) are classified either as freehold which means the interest lasts for an indeterminable time, or as less than freehold, which is an interest that lasts for a definite and determinable period and includes leasehold estates.

FREEHOLD ESTATES

A person holding a freehold estate has title to the real property for an indeterminable duration. Included in freehold estates are the fee simple, the fee simple defeasible, and the life estate.

The fee owner may do anything with the property that does not interfere with the rights of others. Ownership of and title to real estate are expressed in terms of the degree, quantity, nature, and extent of rights embodied in a fee simple estate.

Fee Simple Absolute.

The fee simple absolute is the largest and most complete estate known in our legal system. It denotes the maximum legal ownership of real property and includes the greatest possible combination of rights, ownership privileges and immunities a person may have in real property. It is possible to own all rights in a parcel of real estate or only a portion of them.

Fee simple estate is limited only by governmental controls. Government has given up almost all right to absolute ownership, but it has retained certain ownership powers such as power of escheat, police power, power to tax, and the right of eminent domain. Owners have all rights except those reserved by government.

A fee simple estate is an estate of inheritance and may be willed or deeded as it is freely transferable and devisable. All other estates are derived from the fee simple. When a deed does not specify the state being conveyed, it is presumed to transfer a fee simple estate.

(Something to consider: To actually possess a "Fee Simple Absolute" estate you would need to have the biggest army.)

Qualified Estates.

Since the fee simple absolute is the only unlimited ownership interest, all the other inheritable freehold estates are limited in some way. Technically these restricted interests are called defeasible estates, which means that these interests can be defeased or defeated in the future by the happening of an event or a stated condition. In many respects, the fee simple defeasible is treated the same as the fee simple. It is an estate of inheritance and will descend to the heirs of the title holder. ,

A fee simple determinable estate expires automatically upon the occurrence of an event stated in the deed or will and reverts back to the grantor, his heirs or assigns. When creating the estate, words such as "so long as" or "until," followed by the event, are used. For example, property owner "A" conveying property to a church with wording "so long as the property is used for church purposes" creates a fee simple determinable estate in the church. The estate conveyed to the church will end automatically if and when the property is used for non-church purposes.

Life Estate.

Life estate is any estate in real or personal property which is limited in duration to the life of its owner or the life of some other designated person. If the estate is measured by the lifetime of a person other than its owner, it is called a life estate pour autre vie. Life estate is classified as a freehold estate because it is a possessory estate of indefinite duration, but it is not an estate of inheritance.

Since the interest of the grantee in life estate ends at the death of the grantee or another person, the grantor might retain a reversionary interest, which is transferable (alienable, devisable, and descendible) at all times. In the alternative, a grantor may appoint a third party to receive ownership interest at the death of the life tenant. This third person is called a remainderman, one who has a future interest, also freely alienable, devisable, and descendible.

A life tenant may sell, rent, or mortgage the life estate, but can give no greater right than is owned. The right of the buyer or renter ceases immediately upon the termination of the life estate.

Life tenants owe certain duties to the owners of the vested future interest, either the reversioner or remainderman. They are obligated to maintain the property and not allow it to waste, i.e., cause exploitation of mineral deposits, destruction of buildings, or other acts resulting in permanent injury or loss of value to the property.

Homestead Rights.

A homestead is a tract of land which is owned and occupied as the family home. The tract may include up to 160 acres if it is an agricultural homestead or up to one acre if located within a city. Oklahoma has a homestead exemption law in which a portion of the value of the homestead property is exempted from claims of most outside creditors, except where the property is security for debt. The law also exempts $1,000 from assessed value in the calculation of taxes based on value (ad valorem) against an owner-occupied residence.

Homestead is included under the section on possessory estates because of the right of family survivors to the homestead property upon the death of the husband or wife. Upon the death of the surviving spouse, the surviving children may continue to possess and occupy the whole homestead until the youngest child reaches majority. To protect spouses individually, both husband and wife must join in executing any document conveying homestead property.

LEASEHOLD ESTATES

Leasehold estates are possessory interests created by the establishment of landlord-tenant relationships. They may last for a definite time period or for as long as the parties are willing to continue their relationship. For the duration of the lease, the lessee possesses or occupies the land with the understanding that the landlord retains full ownership of the real property. The lessor retains the reversionary rights plus the right to collect compensation. Because title does not accompany such estates, leases are considered to be personal property.

In addition to the fact that most leases contain a clause against the assignment or subletting without prior consent of the lessor, Oklahoma statutes prohibit assignment or subletting without permission from the landlord. In the absence of such restraint, tenants could indiscriminately transfer leases, introducing "strangers" to the landlord.

In an assignment, the entire interest in the property of the assignor is transferred to the assigns or assignees. The transferee comes into privity of estate with the lessor, meaning that each remains liable to the other on the covenants of the original lease. In subleasing, a lease is given by a lessee for a portion of the leasehold interest with the lessee retaining sole reversionary interest. The main difference between subletting and assigning, so far as the landlords are concerned, is that they cannot directly sue the sublessee where it is possible to bring suit against the assignee.

(Definition of privity: - Mutual relationship to the same rights of property, contractual relationship.)

Estate for Years.

An estate for years is a leasehold estate expressed in terms of a specific starting time and a specific ending time. The duration can be any length of time. An estate for years does not automatically renew itself.

Periodic Tenancy.

A tenancy from period to period is an estate which continues for a fixed period (year, month, week) and for successive similar periods unless terminated by either party by proper notice. The most common example of a periodic estate is the month-to-month apartment rental. It is also called tenancy from year to year. ,

Tenancy at Will.

A tenancy at will may be terminated at the will of either the landlord or the tenant and has no other specified length of duration. Oklahoma statute has changed the common law in that estates at will are treated much the same as tenancy from period to period. If, for example, a tenant at will is applying monthly rent, then a thirty day notice requirement must precede termination of the lease, just as in a tenancy from month to month.

Tenancy at Sufferance.

Tenancy at sufferance exists when a tenant, without the consent of the landlord, fails to surrender possession after termination of the lease. This is the lowest estate in real estate and no notice of termination may be required for the landlord to evict the tenant. Designed to protect the tenants from being classified as trespassers on one hand, it also prevents their acquisition of title by adverse possession on the other.

FORMS OF OWNERSHIP IN REAL PROPERTY

All real property is owned by the government, by one person alone, or with others in some form of concurrent ownership. Rights, privileges, and duties are defined in terms of the type estate held and the encumbrances and controls affecting the real property.

Ownership in Severalty.

Sole ownership of real property by a legal person is known as ownership in severalty. The term implies that the person's ownership is "severed" from all others. A natural person may own in severalty any freehold estate previously discussed.

Real property owned by public corporations, such as cities, counties and school districts, is generally owned in severalty.

Concurrent Ownership.

Concurrent ownership of real property exists when more than one person has legal title to the same parcel of land. Each co-owner owns an undivided interest in the real property. Whether or not each co-owner's share is equal may determine the type of co-ownership.

Several generalities apply to all forms of co-ownership. For example, each co-owner is entitled to possess the entirety of the co-owned real property, subject to the identical rights of the others. Generally, all profits derived from the co-owned land must be divided between or among the co-owners according to the interest of each in the real property. Co-tenants cannot exclude the other co-tenant(s) or claim specific portions of the property for themselves. ,

Tenancy in Common.

Concurrent ownership in common exists when two or more persons own undivided interests in one parcel of land. The interest held need not be equal. For a tenancy in common to exist, only the unity of possession must be present. That is, each party must have a right of possession of the whole parcel, subject to the same rights as the other tenants. Tenants in common may deed, will, or encumber their interest in the real property as they choose.

Additionally, a tenant in common may bring a partition action to force a sale of the real property, the proceeds of such sale to be divided between or among the tenants according to their share in the real property. An action of partition may also be used to force a physical division of the co-owned property between or among the tenants where an unresolved dispute exists.

In absence of inferences otherwise, co-ownership is in tenancy in common by presumption of law.

Joint Tenancy.

The major difference between the joint tenancy and the tenancy in common is that joint tenants have the right of survivorship, the grand incident of joint tenancy. Survivorship means that upon the death of a joint tenant, title is vested in the surviving joint tenant(s). In other words, the interest of the decedent in the joint tenancy is vested to the surviving tenant(s) and is not included in the decedent's estate. Joint tenancy, sometimes referred to as a "poor man's will," defeats a will in determining the distribution of the co-owned property.

A joint tenancy exists when two or more persons own equal undivided shares in real property and when such tenants have conformed with the four unities of time, title, interest and possession. The unity of time means that each joint tenant must have acquired interest in the real property at the same time as all other joint tenants. The unity of title requires the same instrument. The unity of interest means that each joint tenant must possess the same interest in real property as to scope (the share of the interest) and duration (the estate possession) means that each joint tenant must have the same right as the other joint tenant(s). A joint tenancy will be recognized only if it was the intent of the transferor to create a joint tenancy.

Creation of Joint Tenancy.

To create a joint tenancy, specific words in a deed or will are required. Such words as "To A and B as co-owners," "to A, B and C to share and share alike," or "to A, B, C and D" are insufficient to create a joint tenancy, unless it can be otherwise specially proven. The most acceptable means of creating a joint tenancy is by stating "to A and B, as joint tenants with the sole right of survivorship, and not as tenants in common." By using such language, the intent to create a joint tenancy may be clearly proven.

An interest in a joint tenancy terminates with death. A joint tenancy is also terminated (severed) if any joint tenant deeds an interest in the joint tenancy. The grantee of the joint tenant's interest will succeed to the tenant's share, but the grantee will be considered a tenant in common. If more than one joint tenant remains, such tenants will continue to hold the remaining interest in the real property as joint tenants. For example, if "A," "B" and "C" are joint tenants and "C" conveys his interest to "X," "X" now holds an undivided one-third interest as a tenant in common with "A" and "B" who continue to be joint tenants, each with an undivided one-half interest in the remaining two-thirds interest

in the real property. Termination of a joint tenancy also occurs when a joint tenant's interest is sold in foreclosure sale or in a sale to satisfy judgment creditors.

Tenancy by the Entireties.

If the four unities are present in a conveyance or devise to husband and wife, and the conveyance indicates an intent to create the right of survivorship in favor of the spouses, a tenancy by the entireties is recognized. A tenancy by the entireties is treated the same as a joint tenancy. For this tenancy to exist, however, it must be between husband and wife and cannot be terminated without the consent of both parties.

Cooperative Ownership.

Cooperative ownership is created when a nonprofit corporation is formed for the purpose of buying, converting or constructing a building in order to create individual apartment units. Shares in the corporation are sold to cooperators and, in exchange for their investment, the shareholders each receives from the corporation a proprietary lease granting them exclusive right to occupy a specific living unit in the cooperative apartment building. Cooperators do not own their living units, but are tenants in a building owned by a corporation of which they are shareholders.

Condominium Ownership.

While often thought of as a type of building or housing complex, condominium ownership or a condominium regime is a specialized form of property ownership. It is a form in which owners own their units in fee simple and share an undivided, fractional ownership of common areas with the others in the complex. Owners receive unit deeds to their own apartments entitling them to a proportionate share in the common areas.

Each owner, by purchasing a unit, is committed to absorbing a prorated share of the cost of maintaining the common area. Each pays a monthly maintenance charge to the owner's association which determines the amount for the assessment. Special assessments may also be made upon the owners from time to time to cover extraordinary expenses not covered by the normal association dues. Condominiums may be used in commercial, professional and industrial complexes, as well for residential property ownership, and are governed by legislation known as the Horizontal Property Act.

Time-sharing.

Time-sharing is a specialized form of condominium ownership. As the cost of building a condominium unit outright, especially in resort areas, might be prohibitive, the developer instead sells a designated share of time in the unit to buyers who each receive a proportionate interest in the property and the right to use for specified periods of time during the year. Each owner pays a pro rata share of maintenance and management costs based on time.

The concepts for time-sharing and interval ownership of units are somewhat different. The time-sharing creates a tenancy in common among the many owners of the same unit and includes the exclusive right of each of them to use the property for specific periods. Interval ownership, on the other hand, creates a separate tenancy to the unit for a specified period each year and thereby provides the exclusive right to use the property during that time.

Townhouse.

A townhouse blends some of the characteristics of a single-family home with those of a condominium. It is a form of residential housing in which the owners own their dwellings, the land beneath and the air space above but share joint ownership of common area contiguous to the units with the other owners. "Cluster or multiple use" zoning, seeking to more fully utilize available land and provide for higher density housing, is necessary for townhouses which feature zero lot lines where one or more of the exterior walls rest directly on the property line. A townhouse usually has a small front and/or back yard and shares common (party) walls with adjacent buildings. Under the townhouse concept, the owner's association owns and administers the common areas, rather than having individual owners hold a prorated ownership interest in them.

FORMS OF BUSINESS ORGANIZATIONS

Business organizations can take several different forms, including sole proprietorship, corporation, partnership, limited partnership, limited-liability company, syndicate and real estate investment trust. All of these business organizations can receive, hold, and convey title in the various ways previously discussed. These forms, while referred to by other names, normally take the form of tenancy in common.

Sole Proprietorship.

A sole proprietorship is a business owned by one individual. The owner of a sole proprietorship is fully liable for the business debts. If business debts exceed the assets of the business, the personal assets of the owner may be attached by creditors for satisfaction of the business debts.

Corporation.

"A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law." As a creature of law, it is capable of owning real property in severalty in the corporate name. Its rights to alienate, encumber and use real property are substantially the same as those of a natural person. However, since a corporation may act only through its agents, natural persons (board of directors, members or officers) must carry out all negotiations and actions involving the transfer of corporate real property or any interest therein.

Ownership in a corporation is evidenced by shares of stock which are transferable without having to dissolve the corporation. Stockholders do not have personal liability for the debts of the corporation as only the corporate assets are subject to the claims of creditors. Corporations are subject to double taxation as they are taxed on corporate earnings and stockholders are further taxed on dividends when received.

General Partnership.

A general partnership is a form of business organization in which the business is owned by two or more persons called partners. In a general partnership, the partners are personally liable for partnership debts exceeding partnership assets. Partners are jointly and severally liable. That is, any individual partner is personally liable for the partnership debts exceeding partnership assets as well as all the partners being jointly liable.

Limited Partnership.

A limited partnership exists when some of the partners are limited in their financial liability to the amount of their contribution to the partnership. Limited partners are "silent partners" and cannot take a role in management of the partnership. The limited partnership is not taxed as such. The individual owners are taxed on their portion of the partnership earnings. Each limited partnership must have at least one general partner who conducts business for the entity and may be held liable for all losses and obligations not met by the other partners.

Limited Liability Company.

A limited liability company is a form of a corporation which is more suitable for smaller business operations. It is similar to a corporation in that it limits the liability to the company assets but has restricted numbers of owners who are called members.

Syndicate.

A syndicate is a term to describe a combination of investors who pool funds for investment. The usual form of syndicates are joint ventures, general partnerships and limited partnerships.

Joint Venture.

The joint venture and general partnership are alike in that all partners are liable for a partnership's debts and all partners normally have a voice in management of the group. The ownership of the group is not taxed (as a corporation would be) but passes through all benefits and/or losses to each partner. The difference between the joint venture and general partnership is that the partnership is normally established to carry on business for an indefinite period while a joint venture is a single or limited purpose partnership, usually for a short time period.

REIT

Real estate investment trusts are unincorporated trusts or associations of investors. They are managed by one or more trustees responsible for making various income-producing investments in real property so that such income may be distributed to holders of the beneficial interest of the real property (trust beneficiaries). To qualify as RE IT under the Internal Revenue Code which exempts REITs from taxation at corporation rates on income distributed to beneficiaries, certain requirements must be met. This necessitates intricate legal advice.

TEST YOUR UNDERSTANDING


Send mail to tom@burroughsco.com with questions or comments about this web site.
Copyright 2008 BurroughsCo.com
Last modified: 09/03/14