Ownership Estates and Methods of Ownership
We often counsel consumer and commercial clients on property rights. Often, those discussions begin with a primer on property law. This blog entry breaks down the types of ownership estates as well as the method of ownership. In subsequent weeks we will post entries on forms of deeds, mortgage rights and responsibilities, mechanic’s liens, construction projects and surety bonds. If you find these articles helpful, or if you have additional questions, please don’t hesitate to contact us.
A. Ownership estates of real property
1. Freehold Estates
a. Fee Simple
Fee simple estate is the most common type of ownership and grants a complete interest in land for use. Indiana recognizes five subsets of fee simple estates:
i. Fee Simple Absolute:
An estate in fee simple absolute is the owner’s to do with as wished and cannot be revoked. However, the land is subject to seizure due to non-ownership issues, such as taxes, settlement of a judgment, and the like.
ii. Fee Simple Determinable:
An ownership interest that reverts to the grantor upon the happening of a stated event. A fee simple determinable is also known as a “determinable fee.” Commonly created with deeds that include words of limitation like “as long as,” “so long as,” “while,” “during,” or “until.” Once the stated event occurs, or ceases to occur, the interest automatically reverts to the grantor. As an example, a deed that conveys property to a church so long as the property is used for church purposes, is a fee simple determinable. If the property ceases to be used as a church, ownership reverts to the grantor. Lindsay v. Wigal, 145 Ind. App. 338, 340, 250 N.E.2d 755, 757 (1969).
iii. Fee Simple Subject to a Condition Subsequent:
A condition subsequent, like a determinable interest, reverts title to the grantor. A fee simple title subject to a condition subsequent estate includes a conditional phrase such as “upon express condition that,” “upon condition that,” “on the condition that,” “but if,” “however if,” “provided that,” or “provided however that.” This type of estate differs from a fee simple determinable because when the condition subsequent occurs, the estate does not automatically revert to the grantor, instead, the grantor has a right of entry and must take steps to re-establish possession of the land.
iv. Fee simple subject to an executory limitation:
In contrast to the determinable and condition subsequent estates, the fee simple subject to an executory interest has a future estate held by a third party. Similar to the fee simple determinable, this estate passes automatically (to the third party) upon the occurrence (or non-occurrence) of the stated event. For example, property is transferred to Abbot so long as the land is used for a hospital, but if used for anything else, then to Barbara. Barbara (the third party) holds the executory interest and if the property is not used for a hospital, it automatically transfers to Barbara.
v. Fee Simple Conditional:
Estates in fee simple conditional, like estates in fee tail “are estates of potentially infinite duration inheritable only by the issue of the first taker.” Restatement, Property § 17. For a conditional fee, the donee receives the property subject to a condition, and once the condition is met, it becomes a fee simple absolute. As an example, in Smith v. Hunter, 23 Ind. 580 (Ind. 1864), property passed to son David, but “Should he die childless, the land should belong to [Sister] or her heirs.” Id. at 581-82. David died childless, and therefore the property reverted to Sister. If a child had been born to David during his life, then the property would have become fee simple absolute and David would have owned the property and he could have alienated (i.e. sold or transferred) the property. Fee simple conditional is distinguished from a fee tail because the fee tail must pass to issue of the donee, whereas fee simple conditional merely requires that the donee have issue, but the property need not necessarily pass to the issue. Fee tails are discussed more below.
b. Life Estate:
A life estate provides the holder of the estate use for the duration of the life of the holder, or in some circumstances, for the life of another. As an example, to A for the life of B, then to C. A has title to the property for so long as B is alive, and upon B’s death, title transfers to C.
c. Fee Tail:
Indiana has abolished estate tails. Ind. Code § 32-17-1-3. A fee tail traditionally limited passing of property to blood relations. As an example Sam may receive a deed “to Sam and the heirs of his body” which meant the property could only pass to Sam’s descendants. If his family line ran out, it would revert to the original grantor (or descendants thereof).
Indiana law provides that an estate that was a fee tail is now fee simple, and if not limited by a valid remainder, is fee simple absolute. Id.
2. Non-Freehold Estates
A non-freehold estate gives possession of the property to the holder but not the right to hold title. Such estates may be a tenancy for years (fixed determined period of time with a start and end date), a periodic tenancy (continuous intervals such as a month-to-month lease); tenancy at will (no fixed duration and may be terminated at either party, generally with reasonable notice); or a tenancy at sufferance (a wrongful hold-over that lasts until eviction).
Indiana provides three forms of concurrent ownership of real estate, including joint tenancy, tenancy in common, and tenancy by the entirety. Powell v. Estate of Powell, 14 N.E.3d 46, 48-53 (Ind. Ct. App. 2014).
1. Tenants by the entireties
Tenancy by the entireties can exist only between husband and wife. Tenancy by the entireties is created when husband and wife purchase real estate together and the deed references owning it as husband and wife. There is no requirement that the deed include the phrase “tenancy by the entireties.” If a deed says “John Doe and Jane Doe, husband and wife…” then the ownership is tenancy by the entireties.
A creditor cannot lien real estate owned by tenancy by the entireties unless both spouses owe the debt. 1 Tiffany, Real Property, 645 (“The most important incident of tenancy by the entireties is that the survivor of the marriage, whether the husband or the wife, is entitled to the whole, which right cannot be defeated by conveyance by the other to a stranger, as in the case of a joint tenancy, nor by sale under execution against the other”). Importantly, this also means that “husband and wife have no separable interest in entireties property, therefore, a conveyance by one tenant is ineffective to pass legal title.” Wienke v. Lynch, 407 N.E.2d 280, 283 (Ind. Ct. App. 1980).
2. Tenants in common
Tenants in common hold property severally, rather than jointly. They are “united only by their right to possession of the property.” Underwood v. Bunger, 52 N.E.3d 829, 832 (Ind. Ct. App. 2016), reh’g denied (May 25, 2016).
There is a statutory presumption in favor of tenants in common over joint tenancy (discussed below). A conveyance of land made to two or more persons creates an estate in common and not in joint tenancy unless: (1) the conveyance or devise expressly states that the grantees or devisees hold the land or interest in land in joint tenancy and to the survivor of them; or (2) the intent to create an estate in joint tenancy manifestly appears from the tenor of the instrument. Powell v. Estate of Powell, 14 N.E.3d 46, 48-53 (Ind. Ct. App. 2014); see Ind. Code § 32–1–2–7. An exception is made for executors or trustees who hold the property in joint tenancy.
If the instrument does not specify the relative stake in the real estate for each tenant in common, it is presumed that they hold the shares equally. Baker v. Chambers, 398 N.E.2d 1350 (Ind. Ct. App. 1980). When the parties disputing the share interest are the original grantees, the presumption is rebuttable. But if the parties disputing title are not the original grantees and there is no indication of the respective shares, then the presumption is conclusive. Id.
In circumstances where a deed is made to two individuals identified a husband and wife, when they were not in fact married, title vested as tenants in common, and each owns an undivided one-half of the realty. Spanier v. Spanier, 96 N.E.2d 346 (Ind. App. Ct. 1951).
Any tenant in common may sell his/her interests, although the tenant may not sell the interests of the other tenants.
3. Joint tenants
An additional method of ownership is joint tenancy. Upon the death of a tenant, the deceased’s share passes to surviving tenant(s). Poulson v. Poulson, 691 N.E.2d 504, 506 (Ind. Ct. App. 1998). Powell v. Estate of Powell, 14 N.E.3d 46, 48-53 (Ind. Ct. App. 2014) (“survivorship is the salient feature of joint tenancy”).
When a joint tenancy is created, the ownership is a single estate in property owned by the joint tenants. “When a joint tenancy is created, each tenant acquires an equal right to share in the enjoyment of the land during their lives and each tenant is entitled to an equal share upon partition.” Ramer v. Smith, 896 N.E.2d 563, 569 (Ind. Ct. App. 2008).
A joint tenant may dispose of the tenants’ interest in the property, and if the tenant does so, it severs the joint tenancy and the tenants’ ownership converts to a tenancy in common. While a tenant may dispose of the tenant’s interest, no tenant may dispose of the interest of the other tenants.
For example, if Alan, Barb, and Charlie own a joint tenancy, Alan could sell his interest. If Alan sold his interest to Donna, then Barb, Charlie and Donna would all own equal interests in a tenancy in common. While Alan can sell his own interest, he cannot sell the interests of Barb or Charlie. If Alan did not sell his interest, but instead died still owning his interest, then Barb and Charlie would continue to own a joint tenancy with just the two of them as owners following Alan’s death.
There are four requirements to create a joint tenancy:
(1) the tenants must have one and the same interest;
(2) the interests must accrue by one and the same conveyance;
(3) the interests must commence at one and the same time; and
(4) the property must be held by one and the same undivided possession.
Poulson v. Poulson, 691 N.E.2d 504, 506 (Ind. Ct. App. 1998); Ramer v. Smith, 896 N.E.2d 563, 569 (Ind. Ct. App. 2008) (“in order to create a joint tenancy, a conveyance must express that the grantees hold the land ’in joint tenancy and to the survivor of them’ or the intent to create an estate in joint tenancy must manifestly appear from the ‘tenor of the instrument.’”).
For a thorough discussion of these issues, or if you have other questions regarding your property rights, please contact Melissa DeGroff, or one of our attorneys here to discuss your situation. It would be our pleasure to assist you.
Also, check out our Doing Business in Indiana: A Reference Guide to Business Law in the Hoosier State for more information on various laws of the State of Indiana as of January 1, 2017.
Comments are closed