License vs. Easement
License vs. Easement - It is very important to understand the difference of a license and an easement. This will be important for the State Exam as well as your career when working with buyers and sellers.
Easement - An easement is a permanent right of use of another's real property. If a seller has an easement right to cross the neighbor's property, this is an appurtenance to the seller's property. This right can be passed on to a buyer. The neighbor who allows the seller to cross their real property is encumbered with this easement. The neighbor has an encumbrance to their property and the easement has lowered the value of their property.
License - A license is a temporary right of use of another's real property. If the seller has permission to use a right of way across the neighbor's property, it is of little value to the seller and their property. The neighbor can revoke the permission/license at any time. The license is not an appurtenance to the seller's property.
Working With Sellers - When a seller says that they have an easement across the neighbor's property, a licensee should ask if it is in writing and recorded with the county. Sometimes a seller will say that they have an easement and all they have is a license/permission. This should clearly be clarified to any buyer. You do not want a buyer to think that the real property has an easement when only a license is present. This could present possible litigation.
Not Transferable - If the use of the neighbor's land was a license, the buyer would have to gain their own license/permission with the neighbor. The license is not transferable from the seller to the buyer.
Servient & Dominant Estate
Easement - An easement is irrevocable. An easement is permanent. The servient property owner cannot withdraw the easement.
Servient Estate - When an easement right exists across a real property owner's property, the total use of the property is encumbered. The property owner must allow the easement holder the right to use that easement across their land. The easement is an encumbrance to the owner's property. The easement usually lowers the value of the owner.
Dominant Estate - When an easement right exists to cross another's property, there is a right of use of another's property attached to the user's property. The property owner has the right of easement across another's property on a permanent basis. The easement right is legally attached to the property and is an appurtenance to the property. This easement right increases the value of the property.
Voluntary vs. Involuntary Easement
Easement Appurtenant/Easement In Gross - Whether a voluntary or involuntary easement, the easement will have an additional classification:
Easement In Gross - Holder does not need to own the easement right or the land that it crosses. If the right is granted to a person (and not the land), the easement in gross dies with the person. The easement will not pass with the land when sold. Easement in Gross is usually granted to companies that do not die. Hence, the utilities gaining an easement in gross.
Still An Encumbrance - Whether an easement appurtenant or an easement in gross, the land that the easement crosses is servient and the easement is an encumbrance to the land.
Recording - When a person " records" an agreement with the County, it is known as " constructive notice." Any person or business can contact the county where the property is located and gain information on the subject property. Recorded documents are available to anyone who requests to see or obtain copies of all subject agreements.
First In Time - Documents that are recorded will have first priority over documents that are not recorded. Easements that are recorded will have greater priority than those easements not recorded.
Not Recorded - An easement that is not recorded is still valid.
Subsequent Buyers/Owners - Future buyers/owners of the dominant estate will always gain the dominant estate status if the easement is recorded with the county. Future buyers/owners will gain the dominant estate if viewed prior and known to the purchase of the dominant estate as an easement and not a license.
Problem 1. - If the seller does not notify the buyer of the easement status (or if it is just a license), the buyer can sue the seller for concealment, anguish, inconvenience, etc. etc.
Problem 2. - Some lawyers will also go after the involved real estate licensees to the transaction.
Status is Important - It is important to establish the status of easements during a sales transaction. Correct information should be provided both principals to the transaction; buyer and seller.
Forms of Easements
Forms of Easements - Unfortunately, for students, there are many different forms of easements. The main areas of questions on the State Exam involve what we have already covered. This would be:
Encumbrances - An encumbrance encumbers the owner's bundle of rights. It removes one of the powers enjoyed by a normal owner who has a fee simple absolute estate. The encumbrance on real property can restrict the present use of the real property or the physical rights of the real property.
Restrict Use Examples - If a neighbor has an easement across the owner's real property, the owner cannot use the entire property as they wish. If a person holds a lease on the real property, the lease disallows the owner's right of use and possession of the property.
Restrict Physical Rights - If the City prevents the owner from building a commercial building due to zoning, this police power has encumbered the owner's rights regarding the physical development of the property for commercial purposes.
Encumbrances - An encumbrance can encumber (burden) the owner's real property. It could be caused by a variety of different entities:
Encumbrances /Present Interest/Physical Rights - An owner can face multiple encumbrances that would affect the owner's physical rights to use and possession of their real property. The following could also reduce the value of their real property. Some of these situations would include:
Encumbrances - A lien placed against the owner's real property is an encumbrance against the property. These do not affect the use and possession of the property. They do restrict the financial ability of the owner and/or could lead to foreclosure on the property.
Liens Classification - Liens are separated into two different forms. They are specific liensand general liens.
Specific Lien - These are monetary encumbrances (liens) that only apply against one specific (specified) piece of real property. It does not apply to any other piece of real property that the owner holds title too; hence specific lien. Specific liens do not apply to personal property such as an auto, furniture, cash, stocks, bonds, etc. Some of the specific involuntary liens include:
INVOLUNTARY LIENS- The following liens are also known as involuntary liens in that the owner did not request them.
Encumbrance / General Liens - A general lien is a lien placed on ALL real property and personal property of the owner. With these forms of liens, the lien holder can foreclose on all property owned by the debtor/owner. All the following are Category III liens and can encumber all the personal and real property of the owner as a general lien:
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Tenancy & Ownership
Tenancy - Any person who has an " interest" in property has tenancy in property.
Title - A person who holds title to property has tenancy in the property as an owner.
Lease - A person who has a lease on property usually has periodic tenancy or a tenancy-at-will on the property. This means the person has a temporary estate of the property they are possessing.
Tenancy And Ownership
Fee Estate - A fee estate allows the title holder(s) to devise (pass on) their interest to their heirs. The tenancy designation of the fee estate tells us who must sign to devise or sell their interest to others. Basically, who has the authority to enter into agreements regarding the property?
Benefits of Tenancy - The tenancy designation also tells the world that has the authority to benefit from the property. Whether it is to receive tax write offs, receive rent, devise title to heirs, simply "cross/use property" (easement), etc.
Tax on Tenancy - Tenancy also specifies who is responsible to pay taxes that are levied against the property.
Devise Property - Some forms of tenancy in community property states allow an owner to devise (passing on) their title interest in property to heirs even though there is a surviving spouse. States such as Texas, Washington, and Idaho allow this form of tenancy. Some states, such as Oregon, prevent this form of tenancy and pass the entire interest to the surviving spouse.
Survivorship Designation - If a tenancy form has the word " survivorship" in it, owners are unable to devise/pass on the property to their heirs. This word means that the last surviving owner will gain 100% ownership of the property; the last surviving owner.
Joint Designation - If a tenancy form has the word "joint" in it, owners are unable to devise/pass on the property to their heirs. This word means that the last surviving owner will gain 100% ownership of the property; the last surviving owner.
Entirety - If a married couple owns property by entirety, each is unable to devise/pass on the property to their heirs. This word means that the last surviving spouse will gain 100% ownership of the property. The last surviving spouse gets the "entire" tenancy of the property.
State Tenancy Laws - Each State has the authority to establish its own tenancy laws. Oregon, as an example, disallows the use of joint and survivorship tenancies for non-married owners. It requires married couples to carry jointly purchased property under the entirety designation. Texas, Washington and Idaho disallow by entirety for married couples, but allow joint and survivorship designations for non-married owners. We will talk about your specific state tenancy laws later in the course.
Multiple States - When married couples own property in multiple states, it is important to establish tenancy in a proper manner in each state. If this is not done, it can cause estate problems and extensive legal costs.
Unities of Ownership
4 Unities of Ownership/Tenancy - When multiple owners hold title to property, there are 4 unities involved with the property. These unities include time, title, interest, and possession.
Tenancy In Common - Multiple owners that can have uneven ownership and can devise/pass on their interest to their heirs. However, they have an undivided interest and use of 100% of the property.
One Unity - Each owner has an undivided interest or use of 100% of the property.
Tenancy In Severalty - This form of tenancy specified on the title tells the world that there is only one owner.
No Unities - Since there is only one owner, the 4 unities do not apply.
Getting Married - When a person holds title as Tenancy in Severalty and gets married, the property will remain individually owned. The property would be designated "Separate Property" of the involved husband or the involved wife. The other spouse would have no claim to the property.
Inheritance - If a person inherits property from a decedent and is the sole designated owner, the property would be designated Tenancy in Severalty and become separate property even if married.
Gift - If a person received property as a gift and was the sole designated owner, the property would be designated Tenancy in Severalty and become separate property even if married.
Commingling - However, if tenancy by a spouse is tenancy in severalty and the married couple utilizes joint funds regarding the property, the other spouse could claim that it is community property. This is when a lawyer should be contacted regarding this legal matter.
An Estate - An estate is the right to use and possess real property.
Hold Title - A person, who holds title to real property, owns the real property.
Majority of Owners - 99% of people who hold title to land, have the right to possess the land. This is where the confusion comes in when we talk about someone who holds title, but not an estate. Confusion also reigns when a person does not have title to the land, but has the right to possess the land; an estate. Obviously, this is only about 1% of the time, but it is something you might have to contend with on the State Examination or in a real life situation.
Title Only - A person could hold title to property and not have the right of possession. They would not have an estate in the property.
Estate Only - A person could have an estate and possess the property, but does not hold title to the property. They could not sell the property or devise it (pass it on) to their heirs.
Situation - You are talking to someone who wants to sell. 99% of the time, you are going to be selling title and possession. BUT, you have to make sure that they own the land and not just a life estate.
Lease Only - A person who leases property does not hold title, but has an estate in tenancy for the length of the lease. When the lease runs out, possession will revert (reversionary interest) back to the owner of the property.
Situation - You are talking to someone who wants to sell property that they are not occupying. Is the property a rental or is occupied with a grantee under a life estate? In either case, the buyer you work with will not be able to occupy/possess the property until the lease/life estate runs out.
An Interest - Any person who has an estate in the property, holds title to the property, or leases the property, is a remainderman to the property. If a person has any combination of these four, they have an interest in the property. They benefit from their position in the property. This is called an "interest" in the property.
An Estate - The right to possess and use the land. A person can be granted the use and possession of land without the right to sell the property (pass title to a buyer) or the right to demise the property (pass the right to heirs).
Life Estate - A life estate is the right to possess property and use property for a lifetime. The holder of life estate has several abilities regarding the use and possession of the property in question:
Freehold Estate - A freehold estate is the right to possess property for a lifetime. 99% of people who buy property will hold title to the property and have the right of possession for a lifetime. 99% of buyers have a freehold estate.
1% of property owners do not have the possession right. They have remainderman interest or hold a reversionary interest in the property. They do not have a " current" freehold estate in that they do not possess the land. Eventually, they will possess the property when the life estate holder dies and they will hold title to the property and have a freehold estate as well.
Freehold Estate ONLY - There are people who have an estate in property for a lifetime even though they do not hold title.
Life Estate Holder - A person who has been granted a life estate in property has a freehold estate. They are allowed to possess the property for a lifetime. They can sell this freehold estate, lease it, and/or mortgage it. They cannot devise it (pass it on) to heirs.
Lifetime Lease Holder - A person who has obtained a lifetime lease on property holds a freehold estate on the property. They have the right to possess the land for a lifetime. There are generous people who have granted a lifetime lease to an individual for $1 a year.
These individuals have a lifetime interest in the property. Once they die, their interest is gone and the named remainderman or the owner with a reversionary interest will acquire their own freehold estate. They have the right to own and possess the property for a lifetime.
Non-Freehold Estate - A non-freehold estate is the right to possess the property for a period of time, but NOT for a lifetime. Most people who hold an estate right (only) are those who hold a non-freehold estate.
Leasing Property - When a person leases an apartment or a house they are gaining a tenancy estate for a period of time, but not for a lifetime. They enjoy a non-freehold estate. The right to possess the property, for a fee, but not for a lifetime. The following would be examples of a non-freehold estate:
OWNERSHIP AND BUNDLE OF RIGHTS
Ownership - Ownership of property is evidenced by holding title to property.
Title - Title is not evidenced by a piece of paper. Title is on record with the county where the property is located.
Bundle of Rights - The owner of property is given specific rights regarding the property that the owner holds title to. These rights are granted under the system of ownership within the United States of America. These ownership rights include:
Local Government Powers
Government Powers - The State, County, Municipality, or one of its agencies has specific powers over all owner property. These powers must represent the interests of the general public. The powers can be contested in a court of law, which would have the final say in regard to the public needs of the property owned by an individual.
Eminent Domain - Government and its agencies have the power to take title of property for the needs of the general public. This is known as condemnation of property through the eminent domain process.
Estate - An estate is the right to possess and use land. A person usually holds title property and holds the estate to the property as well. However, there are instances where a person holds title, but does not have the estate rights to the property. We will talk about this later in the next chapter.
Freehold Estate - If a person has the right to possess property for the rest of their life, they hold what is called a freehold estate. Sometimes referred to as a fee estate. An example would include:
Passing to Heirs
Devise - Passing on title to heirs.
Demise - Passing on an estate (possession) to heirs.
Freehold Estate Inheritable - When a person has the right to possess the property for a lifetime AND has the right to demise/pass on the possession right to heirs it is called a Freehold Estate that is inheritable.
Holding Title - A person who holds title and a freehold estate has the right to pass on/devise that right to heirs.
Freehold Estate Non-Inheritable - If person cannot demise/pass on their right of possession to an heir, if it is non-inheritable.
Life Estate - Some individuals are granted a life estate. They are allowed to live on the property for the rest of their life. Some people are granted multiple life estates by multiple relatives. They cannot pass on/demise this possession right to their heirs. This life estate is non-inheritable. There are two types of life estates:
Non-Freehold Estate - The person who has use and possession of the property does not have this right for a lifetime.
For Years - The person has a definite time when they must move off the property.
Periodic Estate - Most leases are periodic estates in that there is no specific ending date. The tenant has a lease from 12/1/2015 to 12/1/2016 with a " renewal option" of the lease. Since the lease can be renewed, it is a periodic estate. Also, if the lease changes to month to month at the end of the period it is periodic. Renting a hotel room or vacation condo would also be an example of a periodic lease.
At Will Estate - This is a straight month-to-month lease with no specified dates or the right to possess the land until notified. The title holder/owner can terminate the possession/estate at any time with proper notice; at will.
At Sufferance - This is possession without permission. If a person possesses the land without permission, they can be evicted without notice.
History of Real Estate - English Feudal System
Originally, under English land ownership; the King owned all the land.
King Held Title - Title or ownership was held by the King.
Estate - The King would grant a farmer the right to work the land. This right to use and occupy the land was known as an estate. This estate could be passed down to heirs of the farmer, which was known as an estate of the family. This right to pass an estate onto heirs is still in use today.
Feudal System - Though the farmer had the right to use land as a tenant, he had to provide services to the King. Namely to provide a share of the crop as well as pay rent for the use of the land. This characteristic of leasing real property is still in use today.
Allodial System - By colonial times, the land was individually owned. Ownership of land by individuals was still subject to the King's control, but no services or duties were owed to the King. England's Colonial Government controlled the land. It had the power to impose taxes, regulate use, escheat (obtain title to the land if there were no heirs at death), and condemn the land. All these characteristics are still true today.
Boundaries of Owned Land - The boundaries during this time were not truly known. The land was not surveyed or recorded with the government. Owners simply knew the boundaries of the land from past history.
Transferring Ownership - Ownership from one person to another was simply done by the "passing of a clod" of dirt to the new owner. This procedure was usually done in front of witnesses. This signalized the passing of land ownership to another. Witnessing of the title transfer agreement is still done today by a notary witnessing the signatures of the parties passing ownership.
Modern System After the Revolutionary War
Deed and Title
Ownership and transfer of ownership required a written document. This document was known as title to the land. A "deed" was used to pass title (ownership) to another. This system is what we use today in transferring ownership from one party to another.
Constitutional Right - When the Founding Fathers were forming America's government, they wrote the 5th Amendment to the U.S. Constitution. "No person shall be deprived of life, liberty, or property, without due process of law, nor shall private property be taken for public purpose, without just compensation." Even when property is condemned for public needs, the owner must be given just compensation.
Real Property - Land is real property. It is immovable. It is indestructible. All rights and permanent attachments to the land such as a house are also real property.
Economic Value - Value stems from the demand for the property (scarcity of land, preference of the area, and improvements compared to immediate property).
Real And Personal Property
Real Property - Real estate brokers sell real property. This includes the land, attachments to the land, and use agreements involving the land.
Property is an external thing that can be owned or possessed. Property can be divided into two categories: tangible and intangible. The word tangible refers to something that has a definable physical form that can be felt or touched. The word intangible refers to something that cannot be perceived by the senses.
Tangible property consists of real property and personal property. Real property is property that does not move, such as land and the things that are attached to or built on that land. Personal property is property that can be moved or any other tangible property that can be owned.
Chattel - Personal property is also known as " chattel"; a movable article of personal property or any tangible property other than land and buildings.
What about a mortgage? A mortgage on a house is personal property belonging to the lending institution. It is a written document that is not attached to the land. It is a chattel real that can be sold by a lender to another lender as personal property.
Commercial Trade Fixtures - A tenant leasing a commercial building, installs shelving, displays, advertising props, machinery, cash registers, all used for the purpose of business. The items are considered commercial trade fixtures(personal property) and must be removed when the lease expires.
Real Property Ownership
Real Property Ownership - When a person owns real property (Real Estate), ownership includes the earth's surface, the dirt/minerals extending downward to the center of the earth, and upward into air space above the real property. Ownership would also include all things permanently attached to the property by nature or by man.
Property Becomes Personal Property - Some items of real property can be severed or dismantled and can become personal property.
Personal Property - Movable property. All property that is not Real Property (not attached to the land) is also called personal property. It is called Personal or Chattel.
Farming & Crops
Real and Personal Property - Regarding personal property vs. real property. Some owned property has the unique distinction of being real property at one time and personal property later. Some ownership rights are predicated on property owned by another. These borderline areas are utilized quite extensively by the State examination.
Crops in Farming - Crops during their growing phase would normally be considered real property because they are "in the ground." The field is real property and the crops are stuck in the ground. However, the crops are intended to become personal property when harvested. When crops are harvested and put in storage, they become personal property. They are movable and are sold with a bill of sale.
The Doctrine of Emblements- Annual crops cultivated (worked, labored) by a tenant which are treated as the tenant's property rather than the landowner's. If a tenant loses possession of the land, he or she is still entitled to finish raising the crops and to harvest them. If the land passes to someone else because of the tenant's death, the crops pass to the tenant's heirs. If the crops are annual but did not require labor by the tenant or if the crops are not annual, they are not considered emblements. For this reason planted annual crops are governed by the personal property rules as they were planted "with the intent of harvesting."
Planter Owns Crops - Under the characteristic of emblements, the person who planted the crop has the right of harvesting the crop regardless of who currently owns the land when the crop is ready for harvest.
Emblements are Unique - So as you can see, the expiration of a lease or the sale of the property where annual crops are growing does not terminate the right of harvest.
Water Use - There are two basic terms for the right to use water adjacent to your land. They are called Riparian Rights and the Doctrine of Prior Appropriation. With government expansion over the past 100 years, there have been many changes and refinements by various states, but these basic doctrines are the basis for all government doctrines.
Riparian Rights- This is an old form of law and is only followed by a few states in the eastern part of America where there is an abundance of water available for use. This doctrine is interesting in that it grants an unrestricted right to use the water, but it does not allow ownership of the water.
Can't Alter Flow - Though a person can use the water on an unlimited basis, the owner next to the water cannot alter the flow, interrupt the flow, or contaminate the water.
Flowing Water - We use the term Riparian Right if water is flowing such as a river or a stream.
Littoral Rights - Some States use the term Littoral Rights if water is not flowing, such as a lake or pond. The interesting aspect of Littoral Rights is that sometimes a small lake or pond is entirely on land owned by one person, trust, or corporation. Littoral Rights, unfortunately for the owner, would still limit the alteration of the lake or pond by the owner due to local government doctrine.
State Test Factors - For test purposes, you will be expected to understand Riparian Rights (flowing water) and Littoral Rights (water not flowing).
The study of system of rules which a particular country or community recognizes as regulating the actions of its members and which it may enforce by the imposition of penalties.