From making sure your financial documents are in order to packing up boxes, there are many moving parts when closing on a home. One thing homebuyers usually don’t give much thought to is their home’s title — but they should. It shows who legally owns the property, which is critical not just to you but also to future buyers.
Sure, it’s not as exciting as designing your new kitchen or going furniture shopping, but a home’s title is important to avoid potential headaches later on. You might not realize there are several options, and the best one depends on many factors, such as your family’s circumstances, your reasons for buying a home and what you want to happen to it in the event of your death.
Here’s what you need to know about house titles, and how to title your new home.
What is a house title? Is it different from the deed?
A house title denotes ownership rights: It is the bundle of rights that dictates who has legal or equitable interest in the property. It also details the limitations on ownership. For example, depending on how the title is held, you may or may not be able to sell the home yourself, without permission from anyone else.
While a house title is conceptual, a house deed is a physical, written document declaring a person’s legal ownership of a property. In real estate, the deed records a property’s title and the transfer of that title between two parties or individuals. Your county or municipal clerk’s office typically keeps a copy of deeds for all properties in its jurisdiction.
When you purchase a home, a title company conducts a title search to ensure that the seller is the sole owner of the home and no one else has any legal claim to or against the property. Lenders often require borrowers to purchase lender’s title insurance as well, which protects the lender against loss for the loan amount if someone has a claim against the property.
If you don’t have clear title to your home, someone else might be able to argue that they’re the legal owner of the property and that the person who sold it to you didn’t have the right to do so. This can lead to major legal complications and headaches that you definitely want to avoid.
What are the different ways to hold a title?
How title is held for a property is an important consideration. Home title rules vary from state to state, so your options might be limited depending on your state’s laws.
“These concepts go back to common law in England, but each state adopts their own version of them,” says Jordan Lulich, a real estate attorney and licensed title agent with Lulich & Attorneys in Vero Beach, Florida.
Here are some of the most common title options, and the situations in which each would be applicable:
Sole ownership
A property with sole ownership has its title under the name of one person (the sole owner, literally).
Who it’s best for: Single people living alone or a spouse who is purchasing a property as an investment.
What to know: If a married person wants to assume full financial responsibility for a property, their spouse must typically sign a quitclaim deed, giving up their ownership rights.
Joint tenancy with the right of survivorship
Joint tenancy involves two or more individuals purchasing a property together. Each person owns an equal portion of the property.
Who it’s best for: Couples who are purchasing a property together.
What to know: Under joint tenancy, if one person dies, the other gets full ownership of the property without it passing through probate. They simply have to file an affidavit affirming that the title holder has died, along with a death certificate. There are also some cases in which a couple might not want joint tenancy, such as if one spouse has credit issues or works in a high-liability occupation. In those cases, creditors or litigants could potentially lay claim to a property that’s held in joint tenancy. Couples with one spouse in a second marriage or with children from a previous relationship might also want to avoid joint tenancy, if a parent would prefer that their interest in the property go to the beneficiaries of their estate instead of their current partner.
Tenancy in common
Under tenancy in common, multiple people can hold the home title and own the property together, but they’re able to sell their interest or pass it on to beneficiaries of their choosing after they pass away.
Who it’s best for: Tenancy in common is best for groups of people who want to purchase a property and for married couples who don’t want their share of the property to automatically transfer to their spouse. “This method is popular among people who are married for a second time, since it allows each spouse to will their share of the property to their children from their first marriage,” says Jeremy Yohe, vice president of communications for the American Land Title Association.
What to know: If you own a property via tenancy in common and don’t have a will, your share of the property will be distributed based on state probate law.
Tenants by entirety
Some states allow married couples to own a property via this title method, which gives both spouses full ownership of the property. This is most common in community property states. Creditors can’t lay claim to the property if they’re pursuing a debt that’s only owed by one of the spouses.
Who it’s best for: Married couples who live in states that allow it.
What to know: Under this method of holding title, one spouse cannot sell their share of the property without consent from the other spouse. A divorce can affect ownership and might potentially result in a court-ordered property sale.
A living trust
A trust is a legal vehicle that allows you (the trustee) to pass assets, including property, to your beneficiary after your death without going through probate.
Who it’s best for: Anyone who wants total control over what happens to their interest in a property after their death. “Trusts are also the most likely to stand up in court if your ownership is challenged,” Yohe says. “The courts see them as rock solid, as opposed to some of the other methods.”
What to know: You’ll need to hire a lawyer in order to draw up the trust, but you could save your heirs any estate taxes and court fees associated with probate. Plus, the terms of a trust are typically kept private and out of the public record.
Why does the way your title is held matter?
The manner in which your house title is held has many legal ramifications, from how the property can be sold or taken by debt collectors to how your estate manages the property after your death.
If you hold your home title in sole ownership but live in it with a partner, for example, you might expect that your partner will be able to stay in the home if you die. In reality, the executor of your estate might be able to sell the home without getting your partner’s input. If you’d held the title as joint tenants with a right of survivorship, your partner would get full ownership of the home and be able to continue living there.
In addition, if you owe debts, collectors can try to make you sell your home to settle them. If you held your title as tenants by entirety, your home would be safe from debt collection, assuming your partner did not also have significant debts.
Each method of holding a title has different pros and cons. You can choose the way in which you hold your title based on your goals, such as making sure your partner can continue living in the home in the event of your death or choosing exactly how the proceeds from the sale of the home are used.
How to protect your title — and how to change it if you have to
Homebuyers are strongly encouraged (but usually not required) to purchase additional owner’s title insurance, which protects their investment if there are legal challenges to ownership down the road.
This can also protect against title fraud or title theft. Title fraud, in which a scammer transfers the title of a home into their own name, can happen to anyone. It is more common in popular vacation states such as Florida and California, due to their high volume of vacant homes and properties.
If your life circumstances change — say, if you get married and you and your spouse will live together in a home you already own — the process to change your home title is relatively simple and inexpensive. The paperwork can be tricky, however, so enlist the help of a title professional and a real estate attorney to make sure it’s done correctly.
Bottom line
When you purchase a home, it’s important to consider the legal implications of how the title is held. Your home title not only determines who owns the property, but also how it’s passed on in the event of death or financial difficulty. Make sure you understand the different ways to hold a title and the ramifications of each before deciding what is right for your family and lifestyle.
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