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July 5, 2005   

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News & Advice > Buyers' Advice
Housing Counsel: Taking Title with a Friend
by Benny L. Kass

Question: My friend and I have just signed a contract to purchase a condominium, and settlement is scheduled to take place at the end of July. We are both putting up equal amounts of money for the purchase, and have also agreed to share all expenses equally.

Is there some legal document that we need to protect each other's interest in the event a tragedy hits one of us, or should we ever decide to split up. We both want to ensure that if one of should die, the survivor will get the property with absolutely no claims considered by family members.

Answer: There are four ways that title can be held, but only two are applicable to your situation.

  1. Sole owner: This is obvious. Only one person is on the title to the property;

  2. Tenants in common: Under this approach, each of you would have a divisible interest in the property. Let us assume in your case that each of you will have a 50 percent interest in the property. If one of you dies, his or her interest in the property will go to probate, and if you have a Last Will and Testament, your share of the property will be distributed in accordance with the instructions spelled out in that Will.

It used to be that Probate -- especially in the District of Columbia -- was a cumbersome, slow process. However, legislation enacted by the Council of the District of Columbia has greatly simplified the process. Indeed, many States throughout this country have enacted the Uniform Probate Code, which has not only allowed the probate process to move quickly, but has also significantly reduced the costs of probate proceedings.

  1. Joint tenants: Under this approach, on the death of one of the joint property owners, full title will vest in (go into) the survivor. The survivor would own the entire property, without having to go to Probate Court.

It should be noted that some states courts have held that if title is held as joint tenants, but without the language "with rights of survivorship" added to the deed, this will treated as a tenant in common arrangement instead. Under our common law, joint tenancies were favored by the Courts. However, over the past century, legal historians have concluded that this has changed, and now there is a presumption that property is being held as tenants in common unless the deed makes it clear that the intention of the parties was to take as joint tenants.

Accordingly, if this is the approach you want to take, the deed should read "joint tenants with rights of survivorship."

  1. Tenants by the entireties: This type of title is reserved for married couples. This has the same effect as a joint tenant with right of survivorship, but creates a more sacred relationship for husband and wife that is honored by law.

In joint tenancies, if there is a judgment against one of the owners, the judgment creditor can force the sale of the property so as to collect on the judgment. In this situation, half of the sales proceeds will go to the title owner against whom there is no judgment, but the other half will be used to satisfy the monetary judgment.

For example, one of you owes $50,000 to a creditor. Your house is worth $300,000. The creditor can go to court to force the property to be sold, so that the creditor will be paid in full from the sales proceeds. Your joint tenant's interest in the property will not be impacted (although a forced sale will generally bring in less cash than through a normal sale). On the other hand, the amount you owe the creditor -- including court costs and legal fees -- will be deducted from your share of the sales proceeds. If there is anything left -- and often there is nothing -- it will go to you.

In a tenant by the entirety arrangement, unless there is a judgment against both husband and wife, creditors cannot force the sale of their property.

You must, however, also have a Last Will and Testament. Our legal system makes it very clear that judges will honor the intentions of the maker of the Will.

If you do not have a Will on your death, every state has laws of Intestacy, which spell out how your assets are to be distributed. But your intentions may be different from the laws of your state and that is why you absolutely need a Will.

I suggest you discuss these matters with your friend, and with your respective lawyers, before you go to settlement. I also suggest that whichever way you hold title, you enter into a written agreement -- similar to a partnership agreement -- which spells out your respective rights and obligations. This agreement should cover at least the following issues:

  • who pays the mortgage, insurance and real estate taxes;

  • what happens if one of you is unable to make payments?

  • if one of you should die, what will the other person do with the property?

  • if one of you wants out of the relationship, what will happen with the property? Will the remaining owner be able to rent out space to a third party? Will the remaining owner be given an opportunity to purchase your interest in the property, and if so, at what price?

These are important questions, and you must discuss all this before you go to closing. If you cannot talk with him now, do you think you will be able to peaceably resolve differences when you are no longer friends?

There are at least three other documents which you must have.

  • A living will (also known as a "Health Care Directive"), is a written document which spells out your intentions should your doctors determine that you are brain dead or in a permanent coma. With modern technology, life support systems can keep your body alive for many years, even if your brain is not working. Under these circumstances, do you want to be attached to these support systems, or do you want the proverbial "plug to be pulled"?

  • A durable power of attorney: You and your friend keep separate checking accounts, and each of you will pay half of the mortgage, taxes and insurance. Suddenly, you have a stroke and are unable to speak or write. How will your share of the household expenses be paid on a monthly basis?

    Here is where the durable power of attorney comes in. You sign a written document specifically authorizing someone (it could be your friend, or a relative) to take over your financial affairs, including writing checks or even selling the house.

    Without such a legal document, it may be necessary to go to court seeking the appointment of a conservator. The court appointed person will have the same authority to act as if you were making the decisions and signing the checks. But going to court is both time consuming and potentially expensive. The power of attorney can be accomplished quickly and inexpensively.

  • Durable power of attorney for health: This is a document which is similar to the power described above. The main difference is that this document gives authority to a person (or persons) designated by you to make health related decisions on your behalf. Should you be placed in a nursing home or in a senior citizen retirement home, does the doctor have the right to amputate one of your limbs if that is considered necessary for your continued well-being? There are many medical decisions which become necessary, and if you are incapable of expressing your intentions, your doctor needs guidance from someone.

You are taking an important step into your future by buying your home. Make sure that you protect your asset as best as you can now, while you are still able to make those important decisions.

Published: July 4, 2005

Related Articles:

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  • Housing Counsel: Protecting the Surviving Spouse
  • Housing Counsel: Understanding Promissory Notes
  • Do The Math Before Choosing A Mortgage
  • A 15-Year Mortgage: Not A Good Idea

    Author of the weekly Housing Counsel column with The Washington Post for nearly 30 years, Benny Kass is the senior partner with the Washington, DC law firm of Kass, Mitek & Kass, PLLC and a specialist in such real estate legal areas as commercial and residential financing, closings, foreclosures and workouts.

    Mr. Kass is a Charter Member of the College of Community Association Attorneys, and has written extensively about community association issues. In addition, he is a life member of the National Conference of Commissioners on Uniform State Laws. In this capacity, he has been involved in the development of almost all of the Commission’s real estate laws, including the Uniform Common Interest Ownership Act which has been adopted in many states.

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  • Benny L. Kass
    Columnist Benny L. Kass

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