TYPES OF JOINT PROPERTY OWNERSHIP IN MICHIGAN

By: Ashley Prew

Many people do not realize that there are multiple ways to own real property – or, real estate – together with another individual.  Each type of property ownership has different legal ramifications and the type of ownership is determined by the specific language on the deed transferring title to the property.   This article discusses the different types of property ownership and the legal implications of each type.   

Tenancy in Common

In Michigan, the statutory presumption is that if a deed does not specify a type of joint ownership, then the property is owned as tenants in common. Thus, if a deed says to Jane Smith and John Doe, without any language following it, it is presumed to be held as tenants in common.

Tenancy in common is an archaic type of ownership that allows each owner an undivided interest in the whole of the property, even if the percentage of interests are not equal  This means that each owner has the legal right to live in the property or to rent the property.  Problems with this type of ownership often occur if the owners do not agree on how to handle the use of the property.  Additionally, when one owner dies, the surviving owner does not automatically receive full title to the property.  Instead, the ownership interest of the deceased owner is passed to his or her heirs either through his or her estate plan or through probate.  This can potentially be very problematic for both the surviving owner and the new owner of the property interest.  If the joint owners cannot agree on how to handle or dispose of the property held as tenancy in common, the result will likely be an expensive and lengthy battle in court through a “partition action”.  This type of lawsuit seeks to divide the property interest through a sale of the property. The proceeds are divided between the joint owners based on their ownership percentages.    

Joint Tenancy with Rights of Survivorship

Joint tenancy with rights of survivorship is created by very specific language in the deed conveying title to the joint tenants.  Joint tenants with rights of survivorship must also acquire the property interest at the same time (through one deed) to create this type of ownership.  The main difference between joint tenancy and ownership as tenants in common is that with joint tenancy, if one owner dies, the surviving owner obtains 100% of the property ownership.  This type of ownership prevents the problems listed above by avoiding the transfer of a partial property interest.   

Tenancy by the Entirety

The final type of joint ownership of property in Michigan is only available to married couples.  Holding property in tenancy by the entirety comes with certain legal benefits and advantages.  First, tenancy by the entirety includes rights of survivorship for both parties, like joint tenancy with rights of survivorship.  Therefore, if one spouse dies, the other spouse continues to own the property as an individual but with a 100% interest in the property.  Additionally, tenancy by the entirety allows a married couple to own the property as a single legal entity.  The main benefit of this type of ownership is that creditors of an individual spouse may not attach and sell the interest of one of the spouses.  This also prevents a lien from being placed on the property if one spouse is sued as an individual and a judgment is obtained against that spouse. There may be exceptions to this, however, particularly when it comes to the IRS as a creditor.

It is important to realize that if an individual owns property and then marries, the marriage does not automatically create ownership as tenancy by the entirety.  If a couple purchases property and then marries, the marriage does not automatically create ownership as tenancy by the entirety. In both instances, they should meet with a qualified attorney to prepare and execute a new deed to themselves as husband and wife to create a tenancy by the entirety.

Conclusion

When individuals attempt to transfer property ownership on their own, either by sale, or to a family member, there may be unintended consequences on the type of property ownership that is created.  We recommend that individuals needing a property transfer work with qualified professionals to complete the transfer.  Even transfers through “for sale by owner transactions” should use a qualified title company and qualified attorney to complete the transaction in a way that suits the best interests of the property owners.   

THE IMPORTANCE OF PURCHASE AGREEMENTS

By: Adrienne Knack

Often, we have clients in our office who tell us that they have a purchase agreement in place, whether it is for a business, a building, or something else.  Naturally, we want to review such agreements for our clients, so we will then ask them for a copy of the agreement.  That is usually when we hear something to this effect:  “Well, we don’t have anything in writing.  We talked about it and shook on it.”  Regrettably, a handshake does not a purchase agreement make.

It is always better for our client if they have us prepare the purchase agreement, rather than reviewing a purchase agreement prepared by someone else.  To quote Benjamin Franklin, "[an] ounce of prevention is worth a pound of cure."  This is especially true if the drafter of the agreement is not an attorney.  There is a lot that goes into the substantive preparation of a purchase agreement, no matter what item or asset is being purchased.  There are many considerations and terms that need to be included. A layperson is typically not aware of the key subtleties.  This includes provisions that address items like Small Business Administration requirements, arbitration clauses, venue, default, taxes, and warranties, to name just a few.

Another dangerous and often costly mistake made by clients is using form contracts.  Every transaction, especially when dealing with real estate, is highly individual.  Form contracts where the parties simply need to “fill in the blanks” do not work.  They are never specific enough, rarely properly address state law, and often contain extraneous provisions, while missing necessary ones.

A lot of times, people are very eager to buy or sell something and they are willing to sacrifice a lot in order to make it happen.  We always warn clients against this line of thinking.  Something that may seem small or trivial now could become extremely problematic in the long run.  We do not want our clients to open themselves up to liability that could come back to bite them years down the road.  An example of this is property tax prorations.  Property tax prorations are quite complex and are capable of shifting the value of the transaction to the seller or the buyer. A client may say, “I will just pay the taxes” without realizing it may be a $10,000 swing.

Purchase agreements properly memorialize a transaction and also help to protect both the buyer and the seller.  If a proper purchase agreement is not in place the ramifications for both parties could be extraordinarily costly.