Co-Ownership of Property in Texas

Topics Covered

Part One: Tenancy in Common
Part Two: Joint Tenancy with Rights of Survivorship
Part Three: Role of a Last Will and Testament
Part Four: Transactional Considerations

Starting with the Deed

Buyers should carefully consider how co-ownership will be reflected in their deed. The deed is the sole document that evidences title and may also set forth significant agreements of the parties—including the type of co-ownership.

This article focuses on title held in personal names by more than one individual. Both homestead and non-homestead investment properties are discussed. For purposes of this discussion, disregard the common meaning of tenant and tenancy. In this context, these traditional legal terms refer to owners not renters.

PART ONE:
TENANCY IN COMMON

Presumption of Tenancy in Common

Texas law presumes that if two non-spouses are named as co-owners, and nothing more is said, they are tenants-in-common. Est. Code Sec. 101.002. This means they each co-owner owns an undivided one-half interest in the property but there is no automatic right of survivorship. When one co-owner dies the interest of the deceased co-owner goes directly to that person’s heirs, either by will or by intestate succession. The line of succession is vertical, downward to the heirs of the deceased, rather than horizontal, across to the co-owner.

Co-Owners Who Are Spouses

In the absence of JTWROS, does a surviving spouse nonetheless inherit the entire interest in the home when the other dies? Not necessarily. It is first necessary to determine if the deceased spouse died testate (with a will) or intestate (without a will).

If a spouse dies intestate, property automatically vests 100% in the surviving spouse only if the property is community property and the deceased had no children—or, if there are children, all of them are the result of the marriage between these two spouses (i.e., there are no children from a prior marriage, an increasingly uncommon circumstance). Est. Code Sec. 201.003.

Tenancy in Common Versus JTWROS

Tenancy in common and joint tenancy [with rights of survivorship] are both forms of co-ownership, but different:

Texas recognizes two types of co-tenancies which may be deeded: a tenancy in common and a joint tenancy. . . . Under a tenancy in common, the deeded interest descends to the heirs and beneficiaries of the deceased cotenant and not to the surviving tenants. . . . A joint tenancy, on the other hand, carries a right of survivorship. . . . In a survivorship, upon the death of one joint tenant, that tenant’s share in the property does not pass through will or the rules of intestate succession; rather, the remaining tenant or tenants automatically inherit it.

See Wagenschein v. Ehlinger, 581 S.W.3d 851 (Tex.App.—Corpus Christi 2019, pet. denied).

PART TWO:
JOINT TENANCY WITH RIGHTS OF SURVIVORSHIP

JTWROS comes up in two contexts, between spouses and non-spouses. In either case, it must be evidenced by a written agreement that conforms to minimum requirements of the Estates Code.

JTWROS between Spouses

As to spouses, Estates Code Section 112.051 applies: “At any time, spouses may agree between themselves that all or part of their community property, then existing or to be acquired, becomes the property of the surviving spouse on the death of a spouse.” Section 112.052 further requires that such an agreement “must be in writing and signed by both spouses.”

So long as statutory requirements are met no action or intervention by a court of law is required (Est. Code Sec. 112.053)—which is the probate-avoidance goal most people have in mind when establishing JTWROS.

JTWROS between Non-Spouses

As to non-spouses, Estates Code Section 111.001(a) applies. This section states that “two or more [unmarried] persons who hold an interest in property jointly may agree in writing that the interest of a joint owner who dies survives to the surviving joint owner or owners.” Accordingly, business partners or perhaps a brother and sister may agree in writing to establish JTWROS.

Agreements Creating JTWROS

If property is currently held by two persons as tenants-in-common, they can convert ownership to joint tenancy by means of a survivorship agreement as provided in Estates Code Section 111.001(a) or Section 112.051 (depending on whether or not the property is community property). This agreement is a separate instrument from the warranty deed.

It is not mandatory that a JTWROS agreement be recorded, but in most cases this would be a good idea so the agreement should be drafted in recordable form.

Hybrid Deed and JTWROS Agreement

The written-agreement method of creating JTWROS does not physically change the language of the warranty deed; however, many persons are looking for just that—a deed in both their names that makes survivorship rights clear on its face.

How can this be accomplished? One method is to hybridize the deed so that it becomes both a conveyance and a written agreement between the grantees. In order to do this, JTWROS language should be included at the time the parties receive co-ownership and both parties should sign.

Example: the grantee clause would read “John Smith and wife, Mary Smith, as joint owners with rights of survivorship as provided by Estates Code Section 112.051 [if the grantees are spouses] and not as tenants-in-common.”

The deed should go on to state (perhaps in a separate section or paragraph) that it is the intention and agreement of the grantees to establish an agreement concerning survivorship. In order to comply with the signed-agreement requirement, both grantees should then sign and acknowledge the deed. The statutory requirement is thus satisfied.

Title Companies and JTWROS

It is rare for a title company to offer co-owners the opportunity to take title as JTWROS. When buyers arrive at a title company for closing they are usually handed a minimalist bare-bones deed that contains no extra customized clauses in their favor—unless, of course, the buyers’ attorney has negotiated the inclusion of such clauses in advance.

This is one of many reasons that TREC urges the parties to consult an attorney prior to signing the contract. An attorney can prepare a special provisions addendum setting forth the form and content of optional clauses to be included the deed at closing—including but not limited to provisions for JTWROS. Otherwise, the buyers have no way of compelling inclusion of such a clause later.

PART THREE:
ROLE OF A LAST WILL AND TESTAMENT

Intestate Provisions of the Estates Code

Even if a deed contains no survivorship language, each co-owner may make his or her wishes known by executing a last will and testament that provides for inheritance of the deceased’s interest. Est. Code Sec. 101.001. The Estates Code’s intestate plan for property distribution is a fallback that arises by default in the absence of a will or a JTWROS agreement. Choosing not to make a will is equivalent to asking the State of Texas to determine how one’s property will be distributed upon death. Est. Code Sec. 201.001 et seq.

Heirship Property

What happens if a person dies both without a will and without a JTWROS agreement? Such property is called heirship property and, without curative measures, may be unsellable except perhaps privately (without title insurance) by means of a quitclaim or deed without warranties.

A title company will not issue title insurance until heirship issues are first addressed and resolved (They will let you know about their curative requirements in Schedule C of the title commitment). An affidavit of heirship is often used for this purpose (Estates Code Section 203.002) followed by a deed from all the heirs that consolidates title into the name of a new owner.

The heirship affidavit recites relevant facts concerning family history, identifies the heirs, and is usually signed by a family member with personal knowledge. The deed is then signed by the heirs with the goal of moving title into a single heir or perhaps a third-party buyer. Both documents should then be filed in the proper order in the local real property records.

PART FOUR:
TRANSACTIONAL CONSIDERATIONS

Influencing the Content of the Deed

Buyers should not be expect that a title company will assist them with much customization of the warranty deed. More likely, the title company will refuse to allow customization at all unless the contract (or a contract amendment) requires it. Otherwise, the parties will receive the usual minimalist title company document.

It is useful to recall that a title company is an insurance company acting on its own behalf. It is not there to advise or support the parties on what is best for them. It is astonishing how many buyers—including professional real estate investors—naively believe that a title company will draft a deed in their best interests.

Returning to the subject of JTWROS: if buyers want to hold title as joint owners with rights of survivorship, (1) this requirement must be included in the contract before it is signed or (2) a special provision should be negotiated that approves the specific JTWROS language to be included in the deed.

Adding Someone to a Deed

Property owners often seek to add their new spouse or other person to the title in order to establish co-ownership and inheritance rights. Prior to adoption of the Estates Code, the old method was for the owner to transfer the property out to a third party (the attorney or some other trusted individual) who then transferred the property back into the two desired names with JTWROS language. Why this circuitous route? Because common law required that JTWROS be established at inception of title.

The Estates Code changed matters. The owning spouse may deed the property directly into his or her own name together with the name of the receiving spouse (i.e., both spouses are listed as grantees with expressly-stated rights of survivorship) and, so long as both spouses recite proper terms and sign the deed as a written agreement, the statutory requirements are satisfied. JTWROS is created with the names of both spouses appearing on the same deed.

If one’s goal is to add another person to the title but not provide for JTWROS then one can always convey a partial or percentage interest (undivided) in the property (e.g., 50%) to the other party, but this does not result in a single document reflecting both names.

Liability of Added Co-Owner on a Loan

Regardless of whether the desired result is tenancy-in-common or JTWROS, adding a co-owner does not result in the new co-owner becoming liable on the existing debt. Liability on a loan occurs only when one signs a note. Title and debt are distinct and severable concepts. If there is no signature on the note then there is no liability to the bank.

Similarly, if both co-owners have signed the note and one co-owner sells his or her ownership interest, the selling co-owner remains liable on the loan. That person signed the note and the lender has not issued a release; therefore liability continues regardless of what happens to title.

Break-Ups

Here is a common inquiry received by real estate lawyers: “I bought a home with my girlfriend ten years ago. She paid down the down payment but I’ve made the monthly payments ever since, which add up to far more than the down payment. Can I sue her to recover my excess contribution?” The answer is likely no—not unless the parties had previously agreed to be business partners pursuant to Section 152 of the Business Organizations Code. Why? Because both parties are jointly and severally obligated on the note that each of them signed. The boyfriend, in making payments, was just discharging his own individual legal obligation.

Percentage Ownership

Percentage ownership is generally allowed in Texas. As an example, if one real estate investor owns 60%, another owns 20%, and a third owns 20%, then it is possible to specify these percentages in the deed. This results in undivided percentage ownership.

Alternatively, these same three owners could form an entity (an LLC, for example) to hold title, and the records of the LLC would reflect the various membership interests. Another option would be to utilize a trust with specified beneficial interests. An LLC would be preferred if the parties are concerned about investment property risks since trusts do not have a liability barrier.

Percentage ownership is not available in the case of JTWROS.

The Living Trust Alternative

A living trust can achieve the objectives of JTWROS and more. It is designed to hold property during the life of the trustor (the grantor of the trust) and, since the trust does not die, the beneficiaries automatically inherit their respective beneficial interests.