When purchasing or refinancing a home, an important (but sometimes overlooked) detail is how tenancy in the property will be held. While not immediately critical to the loan’s financing, tenancy is absolutely vital with regard to property interest and inheritance. Homeowners are almost always free to choose any type of tenancy they would like*, but a deed is required to change or correct any mistake in the current tenancy information. Below is a sample of some available tenancy types and a brief description of how they work. (Some states have different names of formats for tenancy types. The list below represents a sample of the most common.)
Whenever multiple buyers or owners are involved, an attorney and/or accountant should be consulted to ensure the interests, intents, and tax concerns of each party are fulfilled and guaranteed by their tenancy selection.
SOLE OWNER: An undivided ownership interest by one person with no other party having a right to or interest in the property. In states recognizing Dower Rights, a non-titled spouse may still have rights to the property upon the death of the title holder.
TENANTS BY THE ENTIRETY: An undivided ownership exclusively granted to a husband and wife (as a singular entity), with the entire right to the property passing to the surviving spouse upon the death of the other. (*Not for use in AL, AZ, CA, CO, CT, GA, ID, IA, KS, LA, ME, MT, NE, NV, NM, ND, OH, SC, SD, TX, WA, WV, or WI. These states may default to Joint Tenants if this is selected).
JOINT TENANTS: An equal ownership interest by all parties named on the Deed (as a singular entity) with rights of ownership vested in all surviving title holders. Example: John, Jane, and Harry own 123 Main Street as Joint Tenants. If John dies, Jane and Harry will each equally own the interest in 123 Main Street.
TENANTS IN COMMON: An individual ownership interest in a portion of the property (either equal or unequal) with another party with a shared common interest and right to use as to the whole. Tenants in Common does not provide for survivorship rights. Consultation with legal counsel to provide a will is recommended to identify the recipient of ownership interest upon the death of any title holder. Example: John, Jane, and Harry own 123 Main Street as Tenants in Common. John owns 70%, Jane owns 20%, and Harry owns 10%. Harry dies. Harry had a will which stated his interest should pass to his father, Bill. Bill now has a 10% interest in the property. If Harry did not have a will, his 10% interest must pass according to the state laws where the property is located.