Real Estate Law 8th Edition by Robert J. Aalberts – Test Bank

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Real Estate Law 8th Edition by Robert J. Aalberts – Test Bank

CHAPTER 5

TYPES OF OWNERSHIP

       CHAPTER OUTLINE

I. Estates in Land

A. Fee Simple Absolute

B. Fee Simple Defeasible

White v. Metropolitan Dade County, p.163.

C. Fee Tail

D. Conventional Life Estates

1. Taxes and Interest

2. Insurance

3. Repairs

4. Tenant’s Use of Property

Problem 1

1. Estate Planning

1. Trusts and Estate Planning

In re Estate of Max Feinberg, p. 164.

II. Concurrent Ownership

A. Joint Tenancy

Problems 2, 3, 7

B. Tenancy by the Entirety

Hatchett v. United States, p. 166

Problem 4

C. Tenancy in Common

Problem 5

D. Rights of Concurrent Owners

E. Joint Ownership and Estate Planning

F. Community Property

Lynch v. Lynch, p. 167

III. Forms of Ownership for Investment Purposes

Problems 8, 9

A. Partnerships

Problem 6

B. Limited Partnerships

C. Corporations

D. Limited Liability Companies

E. Real Estate Investment Trusts

F. Federal Securities Regulation

Hocking v. DuBois, p. 168

TEACHING SUGGESTIONS

1. In Evans v. McCoy, 436 A.2d 436 (198 1), Rebecca owned a fee simple defeasible (a farm) that provided that if she died without children the property would pass to her cousins. Without children at the age of 76, Rebecca wanted to sell the farm and, to eliminate the cousins’ interest, adopted her 21 -year-old neighbor. This maneuver was upheld by the court.

2.         Even when state law provides that a murderer loses rights in jointly-held property (see Chapter 5 at footnote 39), the law might not apply when the accused has a defense. See, for example, In re Estate of Vadlamudi, 443 A.2d 1113 (1982) (wife axed husband on Valentine’s Day while suffering a “brief reactive psychosis”) and In re Echardt’s Estate, 54 N.Y.S.2d 484 (1945) (wife killed by husband while he was sleepwalking).

3. In discussing S corporations, you might assume a corporate tax rate of 34% and a personal tax rate of 28%. For every dollar of pre-tax profit distributed to shareholders, the tax impact would be as follows:

After Corporate After Personal 

Tax (34%)             Tax (28%)

Regular Corporation.66.47

S Corporation$1.00 .72

Thus the shareholders in an S corporation will take home 25 cents more per dollar.

DISCUSSION OF ETHICAL AND PUBLIC POLICY ISSUES

On pages 148-149 the ethics and public policy considerations of the tenancy by the entirety is presented. As stated in the discussion, about half the states have abandoned it, while others have modified it to allow creditors to go after the indebted spouse’s assets when the tenancy ends. The tenancy of the entirety is the only concurrent ownership that possesses the unity of person. Thus, this tenancy protects an individual spouse if the other spouse becomes indebted without her permission since such a transaction would be void. The tenancy can be terminated only by joint action.

At one time a moral argument could be made that it preserved the sanctity of the family and marriage by protecting the marital assets as well as allowing for the right of survivorship. This may create social stability and may also give the greatest pleasure to the greatest number. However, today joint tenancy appears to be used to harm the rights of creditors. Although it may be difficult for some to feel sorry for creditors, if enough creditors cannot collect debts from those hiding behind this outdated doctrine, they not only suffer pain but we all suffer from higher interest rates and access to capital. This may detrimentally affect the economy. Since this does not bestow the greatest good to the greatest number, it could likely be an immoral outcome under utilitarianism.

Tenancy by the entirety may also be unfair and unjust to those married couples who own their property in joint tenancy and tenancy in common in those states that do not allow tenancy by the entirety. These couples are not protected from creditors in the same way as those who own property as tenants by the entirety in the states that do allow it. Of course, states are free under our country’s federal system to adopt the tenancy by the entirety doctrine.

Since states create most property laws, not the federal government, these differences are allowed to exist in a bow to the overarching interests of states’ rights and local sovereignty. Thus, the so-called “social contract” Americans have entered into with their government and the rights derived from it should take precedence over creating fairness through uniformity in this situation.

IMPORTANT CONCEPTS AND RELATIONSHIPS FOR STUDENTS TO KNOW

1. Know the early history of common law property law during the feudal times and how those developments still influence property law today.
2. Know the various tenants in the feudal system.
3. Know what a fee simple absolute means and how it is created today.
4. Be versed in the similarities and differences among the defeasible fee estates – fee simple defeasible, fee simply subject to an executory limitation and fee simple subject to a condition subsequent.
5. Know the future interests that are associated with each of the foregoing defeasible fee estates and how they differ.
6. Know what a fee tail estate is and what its current status is in the American common law.
7. Be versed on the life estate, including the fact that it is not inheritable, and its importance today in estate planning.
8. Know how the two important future estates of a reversionary interest and a remainder interest are created.
9. Know the difference between a vested and contingent remainder interest.
10. Know the respective rights and obligations of life tenants.
11. Know the rights and obligations of those who own future interests subject to the life tenant – i.e. reversionary interest holder and the remainderman – including payment of taxing, debts, insurance, repairs and fixtures.
12. Know what a trust is and how it is used in estate planning.
13. Know the difference between an estate or property interest and a lease or contractual interest.
14. Be versed in the “Four Unities” and how they relate to concurrent ownership.
15. Know how the joint tenancy is created and what unities apply.
16. Be versed in how joint tenants hold their interest relative to the other joint tenant(s) and in what circumstances this interest can adversely affect creditors’ rights.
17. Know how a joint tenancy can be terminated and, if terminated, how this may adversely affect potential heirs.
18. Know what a tenancy in the entirety is, what unities apply and it may affect creditors and other third parties.

21. Know what a tenancy in common is and its role in the American common law.

1. Know the rights and obligations of concurrent property owners.
2. Know what community property is and what states use this approach to marital property.
3. Know how it is determined whether property is community and separate.
4. Know the various forms of concurrent ownership for commercial purposes and how they differ in terms of liability, rights and duties and taxes.
5. Be acquainted with how real estate is regulated under federal securities law.