Tenancy in Common Versus Joint Tenancy
What is the difference between tenancy in common and joint tenancy? “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.” Wagenschein v. Ehlinger, 581 S.W.3d 851 (Tex.App.—Corpus Christi 2019, pet. denied).
For purposes of most real estate investor transactions, co-ownership is generally tenancy-in-common which means that the interest of a co-owner (absent express provision to the contrary) passes directly to that person’s heirs—who may or may not be the other co-owner(s). This is the presumption in Texas.
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.
Co-Owners Who Are Spouses
Does a surviving spouse 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). See Estates Code Section 201.003 for further explanation.
Co-Owners Who Are Not Spouses
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 person 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 heir or 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.
Joint Tenancy with Rights of Survivorship (JTWROS)
Joint tenancy with rights of survivorship has been dubbed the poor man’s will since it eliminates the need for a last will and testament—but only as to a particular piece of property. Again, it is ownership being discussed here, not tenancy, but the legal acronym remains what it is.
JTWROS comes up in two contexts, between non-spouses and spouses. At common law, if there were co-owners (joint tenancy) a right of survivorship was presumed whether the parties were married or not. The Estates Code, however, supersedes common law. The Code requires that there be a signed written agreement specifically providing that the interest of a deceased co-owner passes directly to the survivor. This is true for both spouses and non-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 the statutory requirements are met no action or intervention by a court of law is required (Est. Code Sec. 112.053)—which is the goal most people have in mind when establishing JTWROS.
As to non-spouses, Estates Code Section 111.001(a) 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.
Section 121.152 imposes a caveat: in order for a joint tenant to inherit, the survivor must survive the deceased by at least 120 hours. If this does not occur then “one-half of the property shall be distributed as if one joint owner had survived, and the other one-half shall be distributed as if the other joint owner had survived.”
Creation of JTWROS
JTWROS must be created by means of a signed written agreement. 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). It is not mandatory that this agreement be recorded, but in most cases this would be a good idea so the agreement should be drafted in recordable form.
The written-agreement method of creating JTWROS does not physically change the language of the warranty deed and many persons are looking for just that—a deed in both their names that makes survivorship rights clear. How can this be accomplished? By hybridizing the deed so that it is both a conveyance and a written agreement between the grantees. In order to do this, JTWROS language should be included at the time both parties receive a deed of their interest in the property 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 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 sign and acknowledge the deed. The written-agreement requirement of Section 112.051 is thus satisfied.
Last Will and Testament
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 plan for property distribution is a fallback that arises by default in the absence of a will by the deceased. 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.).
Deeds Prepared by the Title Company
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 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. For this to have occurred, the parties must have consulted an attorney prior to signing the contract. The attorney would have prepared a special provisions addendum setting forth the form and content of certain clauses to be included the deed. (An even better idea is for the parties to stipulate as to what the deed will look like and then attach an agreed-to copy as an exhibit to the contract). Otherwise, the buyers have no way to compel inclusion of extra clauses or to require that the deed be in anything other than minimalist form.
This is unfortunate since a warranty deed is qualitatively different from the routine forms and disclosures that title companies also prepare. It is the sole document that evidences title to the property and may also set forth significant conditions upon which the seller is selling and the buyer is buying. It is far more important than, say, a MUD disclosure. And yet too many buyers and sellers say “Just let the title company prepare the deed” and forgo the opportunity to have input regarding its contents. A missed opportunity to say the least.
Influencing the Content of the Deed
In many cases, regardless of whether one is buyer or seller, it is definitely worth the effort to customize the warranty deed to suit one’s purposes. It should not be expected that a title company will assist with this sort of customization or even allow it. More likely, the title company will refuse and require a contract amendment approving the inclusion of any proposed custom language in the deed.
It is useful to recall that a title company is an insurance company acting on its own behalf, so it is astonishing how many buyers and sellers—even professional real estate investors—naively believe that a title company will (either automatically or upon request) draft documents in their best interests.
Back to 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 contract amendment must be negotiated that approves the specific JTWROS language to be included in the deed.
What happens if a person dies both without a will and without a survivorship provision in their deed? Such property may be heirship property and, without curative measures, may be unsellable except perhaps privately 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 requirements in Schedule C of the title commitment). An affidavit of heirship is often used for this purpose (Est. Code Sec. 203.001), followed by a consolidating deed signed by the heirs.
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.
Adding Someone to the Deed
Clients often ask that their spouse or other person be “added to the deed” so that the other person has 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 the common law required that JTWROS be established at the 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 terms and sign the deed as a written agreement, the statutory requirements are satisfied. JTWROS has been created with the names of both spouses appearing on the same deed. Care needs to be used in drafting this instrument so that all statutory requirements are satisfied.
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 an Added Co-Owner on the Loan
Regardless of whether the result is tenancy in common or JTWROS, a co-owner that has been added to a deed does not become liable on any loan or lien that may exist against the property. Liability on a loan occurs only when a note is signed. No signature on the note, no liability to the bank. Title and debt are distinct and severable concepts.
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.
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 is generally allowed. 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 by which the property is acquired. This results in undivided percentage ownership.
Alternatively, the three owners could form an entity (an LLC or a trust) to hold title, and the records of the LLC would reflect the varying membership interests or, if a trust is used, the varying beneficial interests. An LLC would be preferred if the parties are concerned with the liability associated with a rental or investment property 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 joint tenancy and more. It is designed to hold property during the life of the trustor (the person conveying the property into trust) and, since the trust does not die, the beneficiaries automatically inherit their respective beneficial interests.
Information in this article is provided for general informational and educational purposes only and is not offered as legal advice upon which anyone may rely. The law changes. No attorney-client relationship is created by the offering of this article. This firm does not represent you unless and until it is expressly retained in writing to do so. Legal counsel relating to your individual needs and circumstances is advisable before taking any action that has legal consequences. Consult your tax advisor as well.
Copyright © 2020 by David J. Willis. All rights reserved. Mr. Willis is board certified in both residential and commercial real estate law by the Texas Board of Legal Specialization. More information is available at his website, www.LoneStarLandLaw.com.