Joint property ownership can be a great solution for people who want to own a home, especially for first-time buyers. But joint ownership can limit your rights and options -- not only while you own the property, but also when you want to transfer ownership to an heir or another buyer. There are three major forms of joint property ownership (or "concurrent ownership") -- tenancy in common, joint tenancy, and tenancy by the entirety. Specific state laws will dictate the ins and outs of these concurrent ownership alternatives where you live, but here is an overview of joint ownership and the rights of concurrent property owners.
Tenancy in common (sometimes called a "TIC") is the most popular form of concurrent property ownership. Tenants in common (or co-tenants) each own an equal share of a piece of property -- whether it's a house, an apartment building, or other type of real estate. This generally means that each co-tenant has an equal right to possess or use the entire property, and that the rent or maintenance costs of the property are shared among the co-tenants according to their ownership interest. Each co-tenant also possesses a share in the value of the property as it appreciates.
How TICs are divided. Most state property laws refer to the interests of co-tenants as being "undivided" -- meaning that each has an equal right to the property without being restricted to a specific part of it. But, in reality, in many tenancy in common situations each co-tenant will agree to own a different portion of a building (i.e. one floor or one unit) or a specific section of land.
How TICs are transferred. A co-tenant can transfer interest in a tenancy in common to another buyer or to an heir -- via a will, for example. A co-tenant can also mortgage a share in the property. What a co-tenant cannot do is transfer or sell the other co-tenants' interests in the property. Once a co-tenant's interest in a tenancy in common is transferred, the new owner steps into the shoes of the co-tenant seller and becomes a tenant in common with the other co-tenants.
Here are some examples of how ownership and transfer of a tenancy in common interest might work:
Joint tenancy is sometimes called "joint tenancy with right of survivorship." Historically, joint tenancy ownership implied that a joint tenant lost all interest in their property when they died. The deceased person's interest was automatically transferred to the other joint tenant. So, in a joint tenancy, the last surviving joint tenant owned all the property outright.
Creation of a joint tenancy. If you want to create a joint tenancy or take possession of property as joint tenants, make sure that your lawyer or real estate agent is very careful about the phrasing in the deed or will. In general, courts prefer very specific wording that shows the desire to create a joint tenancy and the right of survivorship and not a tenancy in common. For example, a deed or will might include instructions that read "to A and B, as joint tenants with a right of survivorship, and not as tenants in common."
What's more, in order to create (and maintain) a joint tenancy, the joint tenants must satisfy four complicated requirements related to the property. These requirements are called the "four unities" in legalese, because they involve unified rights in terms of time, title, interest, and possession for all joint tenants.
Why would someone want to create a joint tenancy? They are often used by married couples who want to avoid the hassle of an extended probate process, because a joint tenancy interest will automatically transfer from the deceased spouse to the surviving spouse without having to go through probate court.
Conversion of joint tenancy to TIC. Sometimes, under state law, a joint tenancy will automatically convert to a tenancy in common (TIC). For example, if joint tenants die simultaneously, their property is treated as a tenancy in common by the courts, for purposes of inheritance and estate distribution. And if two or more people inherit property from a last surviving joint tenant, they do so as tenants in common instead of as joint tenants.
The third form of concurrent ownership -- tenancy by the entirety -- is only available to a married couple who owns a piece of property together (i.e. they do not have equal but distinct shares). The couple must fulfill all of the requirements needed to create a joint tenancy, with an added condition -- they must be married at the time they acquire the property and must remain married in order for the tenancy by the entirety to be valid. This means that an engaged couple cannot purchase a house as tenants in entirety. And, should a married couple divorce after being tenants in entirety, they become tenants in common.
Transfer of interest in a tenancy by the entirety. A tenancy by the entirety is similar to a joint tenancy in that if one co-tenant dies, that tenant's interest is automatically transferred to the surviving spouse. A tenancy by the entirety is also stricter than a joint tenancy in that one person cannot sever or change the tenancy by transferring interest to another person.
Not all states recognize tenancies in entirety -- but those that do often presume that a grant of property to a husband and wife automatically creates a tenancy in entirety, unless some other type of ownership is specified.
In states that do not recognize tenancies by entirety, it is assumed that property granted to a husband and wife creates either a tenancy in common or a joint tenancy with right of survivorship -- unless the grant specifies some other form of ownership. Check what types of ownership are recognized in your state and make sure that you carefully word any title that's intended to create a tenancy by the entirety. Most courts accept something along the lines of "to H and W, husband and wife, as tenants by the entirety."
Spousal debt and tenancy by the entirety. In some states that do recognize tenancies by the entirety, a creditor is allowed to collect a spouse's debts from the interests of the property as a whole (as long as the debtor spouse is still alive). Other states have banned this practice and only allow a collector to foreclose on a tenancy if both spouses are liable for the underlying debt.
A unique trait of tenancies in common and joint tenancies is that co-tenants may ask a court to "partition" the entire property -- as opposed to one co-tenant simply selling their own individual interest in the property. In a request for partition of the property, a tenant in common (or a joint tenant) asks the court to divide the property into distinct and separately-owned sections. Sometimes the property is divided through a "partition by sale" and the proceeds of the sale are distributed to the co-tenants. Partition of the property is not possible in a tenancy by the entirety.
Understanding the different forms of property ownership, and what each concurrent ownership option means now and in the future, is key for anyone looking to buy a home. Tell your lawyer or real estate agent what you want to get out of your property ownership, and this will help them (and you) determine the best fit.
For more information about buying a home -- including tips on choosing between a house, condo, or co-op -- get Nolo's Essential Guide to Buying Your First Home, by Alayna Schroeder, Ilona Bray, and Marcia Stewart.