© OnCourse Learning. All Rights Reserved. Property Ownership and Interests Learning Objectives...

© OnCourse Learning. All Rights Reserved.

Chapter 2

Property Ownership and Interests

Learning Objectives

Define and give examples of real property and personal propertyDefine and give examples of fixtures, as well as describe tests for

determining if an item is a fixtureDefine and list the freehold estatesDefine severalty and concurrent property ownership including

condominiums, townhouses, cooperatives, PUD’s, and timeshare property

List and define types of liensList and define types of easementsDefine encroachments, water, air, and subsurface rights


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Real Property Real property consists of land, improvements, rights and privileges Conveyed by deed

Tenements and Hereditaments Tenements include those things that can be touched and seen

(buildings) as well as things that are intangible (easements) Hereditaments are those things capable of being inherited Plants include fruits of the soil (fructus naturales or perennials) or

fruits of industry (fructus industrials or annuals) Plants requiring annual cultivation are considered personal property Plants not requiring annual cultivation are considered real property

unless in a movable container


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Appurtenances Rights or privileges that “runs with the land”

Subsurface Rights Rights that exist under the surface of the earth (i.e. mineral rights)

Air Rights Rights that exist above the surface of the earth Limited to what the owner is reasonably expected to use

Riparian Rights Rights of an owner bordering a flowing body of water


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Lateral and Subjacent Support Lateral - Right of land to be supported in it’s natural state by adjacent

land Subjacent – Right to have land supported from below (i.e. mining)

Personal Property Anything not considered real property Conveyed “Bill of Sale”


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Fixtures Item that was once personal property that has become real property

by virtue of its’ attachment Total circumstance test:

1. Intent – major determinant2. Relation of the attacher3. Method of attachment4. Adaptation or customization

Trade fixtures – fixtures used in the conducting of commerce. Considered personal property and can be removed at end of lease

Uniform Commercial Code – provides for a lender to have a fixture considered personal until paid off


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Improvements Anything attached that increases the value or utility of the land Can be “to the land” or “on the land” “To the land” includes roads, utilities, grading, etc. “On the land” includes buildings


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Estates and Real Property

Eminent Domain The Right to take private property for a public use by paying the

owner fair and just compensation The actual taking of the land is considered condemnation

Police Power The right of a government to make and pass reasonable rules and

regulations to promote and protect the public welfare (i.e. building, fire, health, and sanitation codes)


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Estates and Real Property

Taxation Real property taxes is the largest source of income for local

government

Escheat When an owner dies without leaving a valid will, and no apparent

heirs, the property will convey (escheat) to the state


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Estates in Land Either “freehold” or “Nonfreehold” (leasehold or less than freehold)



Freehold Estates Freehold lasts for at least a lifetime Can be inheritable or non-inheritable

Estates of Inheritance Fee Simple Absolute:

• Also known as “fee simple” or “fee”• The highest and best form of ownership available in real property

Fee Simple Determinable• Grantor sets conditions on future use of real property• Title AUTOMATICALLY reverts to grantor if conditions are violated

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Estates of Inheritance Fee Simple Subject to Condition Subsequent:

• Grantor sets conditions on future use of the property in some way• Grantor, his heirs, or the remainderman must take action to regain

title if conditions are violated• Note: Both Fee Simple Determinable and Fee Simple Subject to a

Condition Subsequent are defeasible or qualified fee estates Estate Pur Autre Vie:

• Estate based on the lifetime of another (i.e. Person A conveys title to Person B for the lifetime of Person C)



Estates of Not of Inheritance Conventional Life Estate:

• For the life of the named life tenant Marital Life Estate:

• Allows surviving spouse a life estate in 1/3 of real property owned in severalty by the deceased anytime during the marriage

Dower/Courtesy: • Wife’s/Husband’s right to a life estate in the property owned by a

deceased spouse during the marriage• Abolished and replaced by the Marital Life Estate created by North

Carolina Intestate Succession Statutes

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Life Estates Conventional Life Estate:

• Created by the act of parties • Non-inheritable freehold estate

Marital Life Estate: • Created by the operation of law • Governs the distribution of property for a spouse who dies intestate• A will cannot defeat the marital interest of a surviving spouse• Statute does not apply to property owned as tenants by the entirety• Surviving spouse has a choice of EITHER:

• Marital life estate OR

• Property of the deceased spouse willed to the surviving spouse

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Chapter 2Property Ownership and Interests

Life Estates The grantor or his/her heirs will have a reversionary interest in the

estate • At death of life tenant, estate will revert to grantor or his/her heirs

Grantor Grantee (life tenant)



Life Estates Alternatively, the conveyance of the life estate could specify that the

estate pass on to someone other than the grantor or his/her heirs (life estate in remainder) • This person would be called a remainderman and has a

remainder, or future, interest in the property

Grantor (in a deed) Grantee Remainderman



Life Estates – Rights of Responsibilities of Life Tenants Right of alienation:

• Life tenant may transfer his/her title to another • May pledge the title as security for a debt• Note: May only transfer or pledge title to life estate, not to whole

bundle of rights Responsibility of preservation:

• Must not commit waste • Must preserve the estate for the benefit of the remainderman or

holder of the reversionary interest Right of estovers:

• Allows life tenant to cut and use a reasonable amount of timber from the land to repair buildings or to use as fuel

• Does not allow the tenant to cut and sell timber for profit

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Life Estates – Rights of Responsibilities of Life Tenants

Responsibility for taxes: • Has an obligation to pay the real property taxes on the property in

which he/she has a life estate Responsibility to repair:

• A duty to make repairs to the improvements on the land• Cannot permit the property to deteriorate due to lack of repairs

causing depreciation of improvements



Non-Freehold Estates Estate for years:

• For any fixed period of time • Automatically terminates at the end of that period• No notice required to terminate

Estate from year to year (periodic estate):• A periodic estate that automatically renews at the end of its period if the

parties do not provide otherwise• Notice is required to terminate

Estate at will: • An indefinite duration• May be terminated by either party instantaneously by giving notice to the

other party• Payment of rent would change this to a periodic estate

Estate at sufferance: • A holdover situation created when the tenant’s lease has expired and

he/she fails to vacate the premises• Differs from trespassing in that tenant originally entered property legally

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Forms of Ownership Ownership in Severalty:

• Title is held in the name of only one person Concurrent (Joint) Ownership:

• Simultaneous ownership of real property by two or more people Tenancy in Common:

• Two or more people holding title to property at the same time with no right of survivorship

• Each tenant in common holds an undivided interest in the entire property• These interests may be, but need not be equal

Joint Tenancy: • Must acquire interests at the same time and on same deed• If joint tenant sells his/her share, the new owner will become a tenant in

common• No automatic right of survivorship in North Carolina



Forms of Ownership Tenancy by the Entirety:

• Limited to ownership of husband and wife• Right of survivorship• Surviving spouse receives title by operation of law• Marriage does not create tenancy by entirety for property one spouse brings

into the marriage• One spouse may convey ownership to both spouses as tenants by the

entirety• Both spouses must sign deed to convey property held as tenants by the

entirety to one of them in severalty• After decree of divorce, ownership reverts to tenancy in common

Community Property:• Not practiced in North Carolina



Condominiums Includes the ownership of the airspace of the individual unit in any form of

ownership Airspace owners own common areas as tenants in common however, the right

to partition is waived


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Combination (Hybrid) Forms of Concurrent Ownership

Condominiums Ownership of the individual unit plus co-ownership of the common areas

The 1986 North Carolina Condominium Act Pertains primarily to residential condominiums Public offering statement:

• Must be provided by the developer to the prospective buyer before the contract is signed

• Must disclose certain information pertaining to the project, including the right to cancel

• Does not apply to resale



The 1986 North Carolina Condominium Act Purchaser’s right to cancel:

• Can cancel for any or no reason, within SEVEN DAYS after signing contract

• Does not apply to resale Escrow of deposit:

• Deposits must be kept in an escrow account the full SEVEN DAYS or until cancellation and refund occurs

Resale certificates: Disclosure of monthly assessments for common areas and other fees for

which owners are responsible is required Warranties:

• Unit is constructed in an acceptable manner, free from defects, and suitable for the purpose intended unless warranty has been disclaimed so as to void it




Townhouses Ownership of the unit as well as the specific portion of land upon which the

individual unit is located The Home Owner’s Association owns the common areas

Cooperatives Ownership of shares of stock in a corporation that owns a building containing

cooperative apartments Right of possession is provided by a proprietary lease




Time Shares Any right to occupy a property for five or more separated time periods over a

span of five or more years Purchasers must be given a public offering statement Five day right of rescission Escrow requirement ten days

Planned Unit Developments (PUD’s) Small community that includes some form of housing, recreational areas, and

supporting commercial activities Any form of residential ownership may be present; such as single-family

homes, condominiums, or townhouses Concept of land development rather than a form of ownership



Encumbrances to Real Property

Liens A claim or a charge against the property that can result from a contractual

agreement or from the operation of law

Easements The right someone has in the lands of another

Encroachments A trespass on the land of another as a result of an intrusion or invasion by

some structure As disclosed by a survey



Classification of Liens




Specific Liens Mortgage

• Pledges a specific property as security for a debt • North Carolina uses deed of trust as security instrument• Default on repayment of the mortgage or deed of trust note will cause

the lender to foreclose by having the property sold at public auction• The proceeds of the sale are used to satisfy the debt

Real property tax • Taxes levied by a local government• This type of lien has priority over all other liens• Real property tax liens are good for ten years




Specific Liens Special assessment:

• A charge against a property for the prorata cost of some improvements made to areas adjoining the property (i.e. street paving, water and sewer lines, sidewalks)

Mechanic’s lien: • A lien filed by anyone who provides labor or material to a property• Must file within 120 DAYS from the last day that labor or material

was furnished to the property • Effective from the first day that labor or material was furnished to the

property• Must be enforced within 180 DAYS from the last day of work




General Liens A court decree of the amount one person is indebted to another Judgment:

• General lien against all real and personal property the judgment debtor owes in the county in which the judgment is recorded

• May be recorded in any county in the state Personal property tax:

• Annual tax assessed on certain personal property owned as of January 1st of the tax year

• Covered in detail in Chapter 3 Income tax:

• A general lien for federal and state income taxes• This lien does not have a special priority




General Liens Estate & inheritance tax:

• Federal government imposes a tax on the estate (real and personal property) of deceased persons, called the estate tax

• States also impose a state inheritance tax upon the inheritance of real and personal property

• Taxes continue until they are paid




Priority of Liens Priority generally based on the time (day and hour) the lien is recorded with

those recorded first taking priority This system is also known as the pure race system Exceptions to this priority are:

• Real property taxes – always given priority over all other liens• Personal property taxes – like real property taxes, given priority over all

other liens• Mechanic’s liens – priority relates to the first date of work on the job rather

than the date of recordation



Classification of Easements Appurtenant easement:

• An easement between two or more adjoining properties, owned by two or more separate owners, and is said to, “Run with the land”

• Land that is benefited from the easement is the dominant tenement and the land encumbered by the easement is the servient tenement

Easements in gross – not dependent upon ownership of an adjoining property. No dominant tenement; only a servient tenement• Commercial easements in gross are assignable and can be conveyed• Most common use of commercial easement in gross is for the purpose of

installing power lines, telephone or cable lines, and gas lines above, on, or under the surface of the earth

• Personal easements in gross are:• Not assignable• Cannot be conveyed• Not inheritable

• Personal easements in gross are rare



Classification of Easements Appurtenant easement:

• An easement between two or more adjoining properties, owned by two or more separate owners, and is said to, “Run with the land”.

• The land that is benefited from the easement is the dominant estate and the land encumbered by the easement is the servient estate.

Easements in gross – An easement between a parcel of land and a person or legal entity. This involves a servient interest only.• Commercial easements in gross are assignable and can be conveyed • Most common use of commercial easement in gross is for the purpose of

installing power lines, telephone or cable lines, and gas lines above, on, or under the surface of the earth

• Personal easements in gross are rare



Creation of Easements Express (specifically stated or written)

• Grant or reserve: • Seller may grant or buyer may reserve easement by including

appropriate language into the deed



Creation of Easements



Creation of EasementsParty walls:

• Used by adjoining neighbors to support the side wall of each unit • When the property line is in the middle of the wall, each owner has a cross

easement into the others property or tenancy in common • When the wall is entirely within the property of one party, the other has an

easement in the use of the wallDedication

• An easement granted for public use such as water and sewer lines Implied

• Necessity: • Implied when the actions of a party demonstrate an intent to create an

easement• Reference to recorded plat:

• Implied from a plat showing the existence of an easement



Creation of Easements Operation of law – Easement acquired by continuous, long term adverse use

• Prescription: • Using another’s land for a prescribed period of time• Must be used without permission• Must file suit to quiet title to prove conditions have been met before

acquiring title• Condemnation:

• Enables the government to take private land for the benefit of the general public under the power of eminent domain

• Commonly used to obtain easements for rights-of-way, not to obtain title

• Statutory cartway proceeding can be created when the owner of a landlocked property petitions to have a cartway sectioned off of another owner’s property for ingress/egress



Termination of EasementsEasements may be terminated as follows:

• Release of the easement by the dominant owner to the servient owner

• Combining the dominant and servient properties into a single tract

• Abandonment of the easement by the dominant owner

• Cessation of the purpose for which the easement was created

• Expiration of a specified time for which the easement was created

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© OnCourse Learning. All Rights Reserved. Property Ownership and Interests Learning Objectives...

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