While most homes are bought by married couples, changing demographics and societal norms have led to increased numbers of single buyers, unmarried partners, siblings and multiple generations buying homes together. The relationship of co-buyers influence how they choose to hold title to the property.
“Individuals who buy homes on their own simply hold title as the sole owner,” says Tom Drechsler, regional counsel with Sage Title Group in Timonium, Maryland. “The question of how to hold title becomes a little more complex when there’s more than one owner.”
The National Association of Realtors’ 2019 Profile of Home Buyers and Sellers found that 17% of homes were purchased by single women and 9% were purchased by single men. The number of homes purchased by married couples was 61%. Unmarried buyers purchased 9% of homes, up from 8% in 2018, and 12% of purchasers bought a home to be used by multiple generations.
“Single buyers can title their property as individuals, as a business entity if they choose to open an LLC or as a trust for estate planning purposes,” says Carol Calomiris, regional senior vice president of RGS Title in Washington, D.C. “Individual ownership gives you the most flexibility and control over your property, but if you’re an investor, an LLC can provide limited protection against claims that could arise out of the ownership of the property.”
Why your clients’ title decisions matter
If your clients are buying with someone else, there are two main reasons to discuss their title options with an attorney or title company representative.
“Your title designates what happens to your property if you pass away,” says Steve McClung, a settlement attorney with Sage Title Group in Annapolis. “In addition, the way you hold title may, under certain circumstances, protect your property ownership if there’s a judgment entered against one of other owners.”
A court judgment against one owner could become a lien against that owner’s interest in the property, for example, if one of the owners is sued for an accident or an unpaid debt.
For most people, says Drechsler, the most important question to answer is to whom they want their interest in the property to pass upon death.
“You need to think about whether your co-owner should inherit your share of the property or if you prefer that a designated heir inherits your share,” says Drechsler.
Three options for sharing a property
The three basic ways for co-owners to share a property include:
Tenants in Common. This form of ownership can be used by two people or a group of people and can accommodate unequal ownership such as 10% by one owner, 80% by another and 10% by another, says Calomiris.
“The portion of the property they own goes to their estate and their heirs when an owner dies, not to the owner,” says McClung. “Friends buying a vacation home together often choose this method because it protects their investment and makes it easier to sell their portion to one of the other investors.”
A disadvantage of owning as Tenants in Common, says Calomiris, is that there’s no protection for co-owners against a court judgment entered against a co-owner. While the judgment against one owner does not attach to the remaining owners’ interests, the judgment creditor can wreak havoc if they seek to enforce their lien.
Joint Tenants with Right of Survivorship. Under Joint Tenants with Right of Survivorship ownership, the owners must divide their ownership equally, such as 33% for each of three owners. The owners will inherit the portion of a co-owner who passes away.
“The portion will be equally distributed among the remaining owners,” says McClung.
This ownership method doesn’t offer any protection for co-owners against creditors, says Calomiris, but it’s common to use for family property such as siblings owning together who want their sibling to inherit rather than their children if they pass away.
Joint Tenants by the Entirety. Only married couples can own as tenants by the entirety, which means the spouse will immediately own the property in full if one spouse passes away, says Calomiris. A non-borrowing spouse can be on the title so that both own the property.
“Joint Tenants by the Entirety offers protection from creditors because a judgment has to be against both spouses to be attached to the property as a lien,” says Calomiris. “The only exception is IRS debt, which can attach to only one spouse’s interest in the property.”
Some married couples, particularly if they’re in a second marriage and have children from a previous marriage, choose Tenants in Common, says Drechsler.
“In some of these cases, spouses want their investment in the house to go to their kids when they pass away but want to ensure that their spouse may remain in the property until the surviving spouse passes,” says Drechsler. “One possible solution is to set up a life estate to establish the right of the surviving spouse to stay in the property until their death.”
Title recommendations for different scenarios
Every property owner’s situation is unique, and a title attorney can provide individualized advice, but some common ways unmarried people own property include:
Romantic partners. Couples typically choose to own as Joint Tenants with the Right of Survivorship because they want their partner to inherit the property, says McClung. “The exception is if one is investing more than the other partner or if there are kids from a previous relationship,” says McClung. “In that case, they’re more likely to choose Tenants in Common ownership because that allows unequal ownership and providing for different heirs.”
Parents helping kids. Often, parents who co-sign a mortgage loan for a child and/or put up a substantial down-payment will want to be a co-owner of the property, says McClung. If the owners want the surviving owners to inherit their interest upon death, they must own the property equally. Otherwise, they need to choose Tenants in Common ownership.
Multigenerational household. Usually one couple – either the parents or grandparents – hold title to the property, says McClung, but it’s possible for all four to own together as Tenants in Common or as Joint Tenants with Right of Survivorship. McClung recommends consulting an estate planner when deciding how to title multigenerational households. “If a property is to be held in trust, the lender will usually want to review the trust documents before the closing,” says Calomiris.
Investors. Investors typically form an LLC when they purchase property together because this provides them with some limited protections for liability that may arise out of the ownership of property, says Drechsler. “In that case, the owners need to have an LLC and an operating agreement in place by the closing day. The Operating Agreement explains how the owners will manage the LLC’s business including the allocations of profits and losses,” Drechsler says. While not required, an Operating Agreement is strongly recommended.
The bottom line: If your clients plan on buying property with other people, encourage them to consider their preference for what happens to the ownership if they pass away and think about the possible need for protection from creditors. A title expert like those at Long & Foster Settlement Services can help them evaluate which ownership option best meets their needs.