Title is the word to describe the “bundle of rights” you enjoy as the owner of real estate property. We say that as the owner, you “hold” the title, but title is not a physical thing; rather, it’s the concept of the rights granted over the property through the deed.
However, title isn’t just one thing – you can actually hold title in multiple ways under California real estate law. When you are in the process of buying property, the escrow officer will ask you for “vesting instructions”; these are instructions on how you will hold the title.
The different ways title may be held can get confusing, so below, we outline the typical “bundle of rights” and ways that you can hold title.
The Title’s “Bundle of Rights”
In a properly drafted deed, a homeowner is typically granted five basic rights. To own the property, you must have the right to hold the title. This is the right of possession. In addition to possessing the property, however, you should also be able to use the property. So, the right of control and the right of enjoyment give you the right to use and enjoy the property.
Control and enjoyment are distinct because the right of control gives you the right to do lawful activities on the property (such as hosting a party), while “enjoyment” in the real estate sense means that you are protected from interference. This is a broad protection that includes interference of the use of the property by previous owners, damage to or pollution of the property, or nuisances. For example, you have the right to host a party under the right of control, but if that raucous party goes on into the middle of the night, that nuisance may violate your neighbor’s right of enjoyment.
You further have the right of exclusion: you decide who may or may not be allowed onto your property. Finally, so long as the title is clear, you have the right to transfer your property to someone else – this is the right of disposition.
How to Hold Title
Before we look at different ways of holding title, we should note that there is a difference between legal title and equitable title. We won’t go into too much detail here, but legal title gives you actual ownership over the property, while equitable title gives you the enjoyment of the property, and the right to acquire legal title. In practice, this comes up for the average apartment owner in two ways.
- First, when you buy property, as soon as the purchase agreement is executed, you are instantly granted equitable title – however, you aren’t in possession of the legal title until the seller signs and hands over the deed.
- Second, in most cases, real estate purchases are financed, so if you have a mortgage or (in California) a deed of trust, the lender secures interest in your property until you pay off the loan. This “bare legal title” allows the lender to foreclose if you default on your loan, but does not truly give them any other rights to your property.
Now, when you “vest” your title, you are holding the title under some form of “tenancy.” This can be confusing, since we normally think of tenants as our renters. Instead, the kind of tenancy will depend on whether you will own the property solely, co-own the property, whether you are married or single, and what kind of estate in land you are holding. If you are unmarried and will own the property alone, you will simply hold the title under sole ownership.
However, when there are other people (or entities) involved, the situation is more complicated. Marital status is important, because certain forms of tenancy are only available to married couple or domestic partners, and because marriage legally entitles the spouse to any property you own under the California system of community property (with numerous confusing exceptions). You can still acquire title as the sole owner in California, but you typically need your spouse or domestic partner to explicitly relinquish their rights to the property.
Forms of Tenancy
If you co-own a property, there are three major forms of tenancy for residential properties: joint tenancy, tenancy in common, and community property. Because we have already covered these forms of tenancy at some length previously, we won’t go over them in detail here. Suffice to say, how you vest your title in a co-ownership situation can be very important for determining the interest of each tenant, how property interest passes upon death, and how California and the IRS tax the property as part of a tenant’s estate. If you are buying property with someone, or if you plan to add someone to an existing title, you should choose how you hold title carefully, and consider consulting with a highly experienced California real estate attorney.
Josué Cristóbal Guerrero is a Founding Partner of Greenacre Law, LLP, with a practice divided between real estate litigation and transactional support. Greenacre Law is a full-service Real Estate law firm. For more information, call (800) 997-8008, email [email protected] or visit their website at www.greenacre.law.com.
Read more articles from the February edition of the AOA Magazine