This is an article about property ownership. It expresses a unique and important, yet misunderstood, method of joint property ownership in Florida.
I have sat as a member of a bank finance committee; the purpose of the committee was to evaluate requests for loans from borrowers based upon loan applications and financial information presented to loan officers. I was the committee’s only lawyer, and had the personal history of having taught and practiced real estate law. My first experience with the committee was to review financial statements submitted in the name of “John Doe,” reflecting significant personal assets, on the basis of which sizeable loans were requested. I began my career on the committee by asking the question whether “John” owns the assets, or whether “John and Jane Doe,” (husband and wife) own the assets. When I first started asking the question, the applicant, and often the loan officer, didn’t have the information, and had no idea why it mattered.
What difference does it make whether the assets are owned by John, Jane, or John and Jane, if the assets on the form are sufficient to qualify for the loan? If you don’t understand the answer to that question, then you are dangerous to yourself and others in titling real estate or establishing bank accounts.
Example 1: Tenants in Common. John and Steve are brothers. They jointly own land in the names “John and Steve Doe.” These owners are Tenants in Common, and each owns an undivided one-half of the property described in the deed. Neither can identify exactly what part of that property he owns, but either could convey his one-half undivided interest, or mortgage it, without consent of the other. Along with the ownership right of each brother to that one-half interest comes the right of a creditor to take that interest to satisfy a judgment debt against either brother. Therefore, whether or not John agrees, Steve’s one-half interest in the property can be taken by a creditor to satisfy Steve’s debt.
The law of Florida gives a partition right to a partner in Tenants in Common property, so that a partner can separate himself from his partner. If a creditor becomes owner of Steve’s one-half interest, the creditor could force the sale of the property because of the unpaid debt by Steve.
Example 2: Tenants by the Entireties. John and Jane are husband and wife. The property is owned in the name of both, “John and Jane Doe.” Even if marital status is not recited on the deed, they are presumed to own the property together as Tenants by the Entireties. The legal fiction is created that each of them owns the entire property. Marriage is the only legal status that creates this relationship and, as a result of it, neither John nor Jane can convey the property alone. Both must act jointly to convey the property; neither person can mortgage his or her interest, and a judgment against only one or the other cannot be satisfied from this property.
The difference between examples 1 and 2 means everything to the lender and his financial statement. If the assets are owned by John and Jane, who are husband and wife, and the loan is made only to John, or endorsed only by John, that loan cannot be satisfied out of any property owned as Tenants by the Entireties. Many investors own assets in the name of both husband and wife. If a lender were to make a loan based upon assets owned by both, then both must sign the note, not just one of them.
A Realtor needs to understand that neither can sign an effective listing agreement or a contract to sell without joinder of the other. Not knowing this is malpractice for a Realtor and disaster for a lender.
The above discussion should tell you why it is absolutely essential for a closing agent to understand the legal relationships any time more than one name appears on a deed or mortgage.
Here are some additional rules you will want to remember:
- Personal and intangible assets owned by married parties are also presumed to be owned as Tenants by the Entireties unless a contrary result is intended. That applies to money in accounts, furniture in the house, stock certificates, and maybe even the ring on Jane’s finger.
- There are many other ways more than one person can own property together. Partnerships, Joint Ventures, Corporations, Limited Liability Companies, and Trusts are examples of these ways. Each has separate and different consequences as to their tax implications, the legal rights of owners, and the legal rights of third parties to separate the interests of the individuals in the event of a claim against an owner.
- He who deals with multiple ownership of property, whether real or personal, without concern for the legal consequences, needs to obtain qualified advice.
There is an old saying that no one is swimming naked until the tide goes out. Please learn about Tenancy by the Entireties. This economy is lowering the water level for all of us, and no one wants you exposed.
Mike Chesser
Chesser and Barr, 1201 Eglin Parkway, Shalimar, FL 32579
850-651-9944
