There are four recognized forms of property ownership in Arkansas. Each option has its own requirements, limitations, advantages, disadvantages & process for how property passes hands in the event of death, divorce or sale.
When you purchase a property you will determine how you and your co-owner(s), if any, want to hold the property (i.e. how you will take title). These terms will be spelled out in your property ownership documents.
Entities other than individuals can hold title to real estate. Property can be owned by an individual, corporation, business partnership, or a trust.
Sole ownership is the simplest form of ownership with the greatest control. You are the only person who owns an interest in your property and you have the freedom to sell it, give it away, borrow against it or leave it to someone in your will.
Joint tenancy is a type of ownership where you and the other owner(s) have an equal interest in the property.
For example, if there are 2 owners you will each have a 50% interest. If there are 4 owners you will each have a 25% interest.
Joint tenancy allows you to sell or transfer your ownership rights if desired and includes the right of survivorship. This means that the interests of each owner will pass to the other owner(s) in the event of death. Joint tenancy is the most common type of ownership for families because it allows a property to pass to survivors without going through probate.
TENANCY BY ENTIRETY
Tenancy by the entirety is similar to joint tenancy except that it is limited to you and your husband or wife. This type of co-ownership is not recognized in all states, but it is recognized in Arkansas.
Tenancy by the entirety means that neither you nor your spouse can sell your interests in the property without the permission of the other. It also includes the right of survivorship which means your spouse will immediately become the sole owner of the property upon your death, and vice versa.
TENANCY IN COMMON
Tenancy in common is a type of ownership where you and the other owner(s) share ownership but can have different ownership interests.
For example, you and owner B may each own 25% of the home, while owner C owns 50%.
This type of ownership does not have right of survivorship. Each party is able to sell their individual interests and if an owner dies their interest passes to their heirs, not to the other owners. This type of ownership is commonly used for businesses.
BUNDLE OF LEGAL RIGHTS
When you purchase a piece of property a “bundle of legal rights” transfers from the seller to you. This “bundle” includes your rights to possession, control, exclusion, enjoyment and disposition.
However, there are forces at play that limit your ownership rights too, such as federal and state laws, county and city ordinances, and subdivision covenants. Ownership restrictions that affect title will be documented on your deed.
Let’s take a closer look at each of these rights and some of the ways in which these rights may be restricted.
KEEP IN MIND!
Restrictions are only listed on the current deed (based on the current contract). Therefore, there could be deed restrictions in effect for a piece of property from a transaction 20 years ago that will not be put on subsequent deeds but remain in effect.
Right of Possession = the right to own your property.
If you pay cash for a home, or when you pay off your mortgage, you will own your property outright and possess title.
Restrictions: However, if you have a mortgage, you won’t own (hold title to) your property until it is paid for. Your lender holds title until your mortgage is paid in full.
Failure to pay property taxes or make mortgage payments can cause your property to be taken away.
There are also laws in place that allow federal and state governments the power to take your property (or part of your property) for public use or economic development, like for roads, utilities or government buildings. This power is called eminent domain and requires you to transfer title of your property to the government. The government is required to compensate you for the land taken, however this compensation will not take into consideration the reduced marketability of your property as a result.
Additionally, your right to own all three elements of your property (it’s subsurface, surface, and air space) depends on whether any of these elements have been severed from your property and sold to someone else.
Right of Control = the right to use your property how you want.
Restrictions: Your desired use for your property must be within the law. It must submit to any deed restrictions, covenants, and zoning/city ordinances it falls under.
Right of Exclusion = the right to keep other people off your property.
Restrictions: You cannot refuse entry to law enforcement with a warrant or anyone given permission to enter your property as part of a deed restriction.
An easement is an example of a deed restriction that gives someone the right to use your land for a specific purpose.
Right of Enjoyment = the right to enjoy your property (knowing no one else has a claim to it).
Restrictions: Your right to quiet enjoyment can be disturbed if someone suddenly makes a claim on your property (like a previous owner or a former spouse). Purchasing a home with anything less than a warranty deed and title insurance can place restrictions on your ability to “enjoy” your property.
Right of Disposition = the right to dispose of (rent, sell or transfer) the ownership of your property.
Restrictions: If you have a mortgage, you cannot sell your home without first paying off the mortgage. If you have a lien on your home you cannot sell it without satisfying the lien first. If you hold a life estate in a property then your ownership is restricted by time (your lifetime) and you do not have the right to sell the home.
DEED VS. TITLE
Ownership of land means you hold “title” to it.
A deed is the evidence that shows you hold title.
When you own a piece of property outright you will possess both the deed and title to that property.
A deed is the legal document that transfers your ownership interest in a piece of real estate to someone else. It transfers title to your property and the bundle of rights that goes with it.
A deed is prepared by an attorney and contains the following information: the names of the buyer and seller, a legal description of the property, deed restrictions (if any), how the new owners will hold title, and which interests in the property are being conveyed. To be valid a deed must have a notarized seller’s signature and be recorded.
The way a property passes hands depends on how the owner(s) took title. Upon death a property is transferred based on right of survivorship, inheritance laws and/or the presence of a will. Probate is the legal process through which an estate is distributed to heirs/beneficiaries.
WHAT IS CLOSING
The legal transfer of a house to a buyer is done at the end of the home buying process at a meeting called a closing. Here, the legal documents needed to finalize the sale of the home are signed, and the funds for the sale are transferred.
In NWA most closings are held at a title company and facilitated by a title company settlement agent. Title companies maintain escrow accounts containing the funds needed to close on the home and ensure monies are collected and distributed appropriately. The agent will explain all the documents related to the settlement before you sign anything and will ensure the new titles, deeds and other documents are filed appropriately.
Title is the final paper product of a closing proving that the transaction took place and that the buyer is now the owner of the property. If the purchase is through a bank then the mortgage company (the primary lien holder) will keep the title documents.
Deeds are the written legal documents that transfer title from one person to another. Deeds must be recorded in the courthouse or assessor’s office to make them fully binding.
There are 4 major types of deeds used to convey title, each with varying levels of protection being passed from the seller to the buyer. In all cases, the buyer is best protected by a general warranty deed.
4 TYPES OF DEEDS
General Warranty Deed– The most common form of deed. It conveys significant warranties to the buyer and promises (warrants) that the seller holds good title and will defend the buyer against any adverse future claims.
Specialty Warranty Deed – A deed where the buyer receives only 2 warranties from the seller: 1. that the seller received title when they purchased the property and 2. that nothing occurred during the seller’s ownership that would negatively affect title.
Bargain and Sale Deed– A deed that implies a seller holds title but does not make any promises that the title is “good”. Therefore, the buyer is left unprotected if title defects surface after the sale. This type of deed is most common for tax sales and foreclosure actions.
Quitclaim Deed – The second most common form of deed. It is used primarily for transferring ownership between spouses in divorce situations, or between friends and family members. It does not contain any promises from the seller and therefore provides the least protection for the buyer. The seller is not making any guarantees that the title is good or that they even own the property being transferred.
The word “title” is a collective term for all the legal rights you have to own, use, and sell a piece of land.
To legally transfer real estate in Arkansas a title search must be performed. A title search tells you the history of the property, how many times it’s been sold, the names of past owners, and the ways the property has been used in the past.
Title researchers at a title company will closely examine all available public records on a property and verify that the seller does indeed have the right to transfer ownership to you, the homebuyer.
The search is also performed with the purpose of checking to see that there are no outstanding circumstances surrounding the property you wish to purchase that could endanger your right of ownership, such as unpaid taxes, outstanding mortgages, liens, judgments against the seller, or restrictions limiting the use of the land.
In most cases, especially when a lender is involved, the title must be found to be free and clear of any such circumstances before the property can be transferred to a new owner.
Should the title company discover any problems during their research that could keep you from having “clear” title, they will work to remedy these issues before the transfer of ownership takes place.
Even with the most diligent research team however there is always the possibility that some hidden hazard was not discovered. Therefore, as an added layer of security, you can purchase a title insurance policy to protect yourself from the surfacing of these “defects” in the title.
In addition to a title search you’ll want to purchase title insurance: an insurance policy that protects your legal rights to the property in the future should those rights ever be challenged.
The policy states that the title insurer (the title company who performed the title search) will assume responsibility for legal expenses should the need ever arise to defend the title to your property. And, if the defense is unsuccessful, they will reimburse you for any resulting devaluation of the land.
For example, if someone comes forward claiming they are the rightful owner of your home, and their claim is proven to be correct, then your title insurance policy will likely pay you the value of the home and the lender the amount they lent you to buy the home.
Title insurance is a one-time premium paid at closing.
THERE ARE TWO TYPES OF TITLE INSURANCE
Lender’s policy – this policy protects the lender’s interest in the property. The lender’s interest is for the balance of the mortgage loan and terminates when the mortgage has been paid in full. This policy is mandatory when a lender is involved in the purchase of a home and the policy is paid for by the buyer.
Owner’s policy – this policy protects you for the full value of the property and stays in effect for as long as you or your heirs own the home. This is policy is optional but highly recommended. It is recommended to seek out a policy that covers the full purchase price of the home with as few exclusions as possible.
Examples of items covered by an owner’s policy:
HOW MUCH DOES TITLE COST?
Rates vary by title company and the size of the loan. It is recommended to shop around for the best premium rates.
Additionally, there may be discounts available for homes that have sold within the last 5 years, for returning customers, or when buyers and sellers choose to close with the same title company.
Title expenses can be paid by the buyer, seller, or split so that each party pays their respective fees. The party responsible for paying title fees is negotiated in the real estate contract.