TAKING TITLE

In the excitement of buying a house or other real property, the decision about how to take title to the property on the deed is often overlooked.  Let’s take a look at the various ways real property can be titled, people’s assumptions about title, and some common problems that can arise as a result of title decisions (or non-decisions!)  This discussion is limited only to North Carolina real property.  The rules for personal property may be very different.

Sole Tenancy

Sole tenancy is taking title in the name of one person.  When the buyer is unmarried, there is no decision--sole tenancy is the only option unless title is going to be put into a separate entity such as a partnership, corporation, or trust.  We’ll reserve a discussion of those issues for another time.  Where sole tenancy gets interesting is when real property is acquired by a married person, or where a person who acquired title to property while unmarried later gets married.  Many people assume that real property in which an interest is inherited, or which was acquired before marriage, is “separate property”, and that the “separate property” owner can do with the “separate property” what the owner wishes without the consent or knowledge of his or her spouse.  This is not true.  North Carolina has special rules for real property to prevent one spouse from cleaning out inheritable real property to prevent disinheritance of a spouse.  One of these rules requires that the consent of a spouse is required for the “conveyance” of real property which is titled separately to the other spouse.  A “conveyance” can be a sale of the real property requiring a deed, or perhaps an equityline loan or a refinance loan requiring a new Deed of Trust to the lender.  Therefore, if one spouse acquires property before or during marriage in his or her own name alone, that spouse cannot dispose of the property during the marriage without the consent and joinder of his or her spouse on the “conveyance” instrument (the deed or deed of trust).  These rules may terminate upon a divorce or be modified by a properly drafted marital agreement.  However, the North Carolina family law rules surrounding divorce and marital agreements such as prenuptial agreements or separation agreements are also beyond the scope of this discussion.

Tenancy in Common

Except for North Carolina real property acquired by a married couple during marriage (discussed later in tenancy by the entireties), tenancy in common is the “default” method of holding title to North Carolina real property when there is more than one owner.  Tenancy in common is created automatically when two or more persons hold title to North Carolina real estate either by deed, by intestate succession (inherited without a will) or by devise (inherited by being named in a will).  The interests held, unless specified differently in the instrument creating the tenancy in common, are equal.  That is, if three people are named as the grantees (buyers) on a deed, then each of those three people own a separate one-third interest in the real property.  A common misconception about tenancy in common is that when one tenant dies, the other remaining tenants acquire the deceased tenant’s interest.  This is not true.  Each person’s interest in a tenancy in common is a separate share.  It can be deeded, inherited or willed without the consent of the other tenants.  The separate share IS subject to the marital joinder rules discussed under Sole Tenancy above.  Because disputes sometimes arise among tenants in common, or one tenant wants their money out of the property while other tenants may want to keep the property, North Carolina does have a special division procedure called partition which is available to tenants in common who have not otherwise agreed to give up their partition rights.  Partition rules are complex, vary according to the property, and are beyond the scope of this discussion.

Tenancy with Full Rights of Survivorship

In North Carolina, two or more people may elect to create a tenancy in common, but with survivorship among the tenants.  Under this form of ownership, if one of the tenants dies, then the remaining tenant or tenants would automatically acquire the property without the property having to go through a will or estate.  However, the other rules of tenancy in common as described above would still apply until the death of a tenant.  A tenancy with full rights of survivorship requires the written and recorded consent of all the tenants.  Therefore, if such a tenancy were being created when the property was acquired, the intention would need to be clearly stated on the deed, and the grantees (buyers) would need to acknowledge that intention by signing the deed along with the sellers.  If owners want to convert an existing tenancy in common into a tenancy with full rights of survivorship, they would basically convey (deed) the property from themselves back to themselves reciting the intention.  In the latter case, if any of the tenants were married, spousal joinder (as discussed above under sole tenancy) would be required on this deed.

Tenancy by the Entireties

Tenancy by the entireties is the “default” mode of ownership when North Carolina real property is acquired by a legally married couple.  This unique form of ownership assumes that the legally married couple is one united and indivisible entity.  It features automatic survivorship similar to tenancy with full rights of survivorship (as discussed above), but it also has features that prevent tenancy by the entireties property, during the marriage, from being liable for the judgments or debts of any single member of the tenancy.  For example, if one spouse was in an unsuccessful business venture and suffered judgments or claims, those judgment or claims could not successfully be charged against the tenancy the entireties real property unless both spouses were liable for the judgments or debts. 

It is increasingly common for a couple who are living together, contemplating marriage, or who are actually engaged, to acquire a house together prior to the actual marriage.  Tenancy by the entireties is not available to this couple until after they become legally married, and a tenancy in common will be automatically created unless a tenancy with full rights of survivorship is specifically elected.  The couple can elect to convert to tenancy by the entireties after their marriage by executing a deed from themselves back to themselves evidencing this desire.

Although tenancy by the entireties is overwhelmingly preferred by most married couples, there are times, especially for estate planning purposes in large estates, where the married couple may want to consider putting the property in just one name (sole tenancy) or a tenants in common.  A exploration of these estate planning techniques is beyond the scope of this discussion.

A tenancy by the entireties automatically converts into a tenancy in common if the married couple later become divorced.