Common Types of Real Property Ownership

When you file for bankruptcy, you must list your legal interest in your real estate. Here are some of the common types of property ownership.

When you file for bankruptcy, you have to list all aspects of your financial situation, including all of the property that you own. If you own real estate—known as real property—you’ll also be asked to disclose your ownership interest using legal terminology.

Although this seems simple, you can hold property in different ways, including:

  • fee simple
  • life estate
  • future interest, and
  • contingent interest.

In this article, you’ll find the definition of the most common types of property ownership, a well as other terms you’ll need to know if you’re considering bankruptcy.

Listing Real Property on Bankruptcy Forms

When you’re filling out your bankruptcy forms, you’ll need to describe all real estate that you own on Schedule A/B: Property of the official bankruptcy forms. You’ll be asked to include:

  • the property address
  • the property type (single-family home, duplex, condo, and such)
  • who has an interest in the property
  • the property value, and
  • the nature of your ownership interest.

It’s the last point that stumps many people. Even though you don’t have to fill in the ownership interest portion, it’s always good to be complete.

Real Property Ownership Types

Here are some common ways to own real estate.

  • Fee simple. This is the most common type of interest. It is outright ownership. Even if you still owe money on your mortgage, as long as you have the right to sell the house, leave it to your heirs, and make alterations, your ownership is fee simple. A fee simple interest may be owned by one person or by several people jointly. Normally, when people are listed on a deed as the owners—even if they own the property as joint tenants, tenants in common, or tenants by the entirety—the ownership interest is in fee simple.
  • Life estate. This is the right to possess and use property only during your lifetime. You can’t sell the property, give it away, or leave it to someone when you die. Instead, when you die, the property passes to whoever was named in the instrument (trust, deed, or will) that created your life estate. This type of ownership is usually created when the sole owner of a piece of real estate wants a surviving spouse to live on the property for the rest of his or her life, but then have the property pass to the owner’s children. In this situation, the surviving spouse has a life estate. Surviving spouses who are beneficiaries of AB, spousal, or marital bypass trusts have life estates.

Other Important Real Property Terms

Most people will use one of the terms mentioned above to describe their real estate ownership interest. But, other situations can exist. Here are some terms that you’re not likely to need, but, depending on your circumstances, you just might.

  • Future interest. This property right comes into being sometime in the future. A common future interest is owned by a person who—under the terms of an instrument such as an irrevocable trust—will inherit the property when its current possessor dies. Simply being named in a will or revocable living trust doesn’t create a future interest, because the person who signed the deed or trust can amend the document to eliminate your interest.
  • Contingent interest. This ownership interest doesn’t come into existence until one or more conditions occur. Wills sometimes leave property to people under certain conditions. If the conditions aren’t met, the property passes to someone else. For instance, Emma’s will leaves her house to Josh provided that he takes care of her until her death. If Josh doesn’t care for Emma, the house passes to Emma’s daughter Jessica. Both Josh and Jessica have contingent interests in Emma’s home.
  • Lienholder. If you are the holder of a mortgage, deed of trust, judgment lien, or mechanic’s lien on real estate, you have an ownership interest in the real estate.
  • Easement holder. If you are the holder of a right to travel on or otherwise use property owned by someone else, you have an easement.
  • Power of appointment. If you have a legal right, given to you in a will or transfer of property, to sell a specified piece of someone’s property, that’s called a power of appointment and should be listed.
  • Beneficial ownership under a real estate contract. This is the right to own property by signing a binding real estate contract. Even though the buyer doesn’t yet own the property, the buyer does have a “beneficial interest”—that is, the right to own the property after completing the formalities. For instance, property buyers have a beneficial ownership interest while escrow is pending on property.

You’ll find more useful bankruptcy terms in When Is a Bankruptcy Claim Contingent, Unliquidated, or Disputed?

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