Ch2. Property Ownership and Rights — US Real Estate License Exam Core

Property Law: Exam Topic Weighting

National exam breakdown:

Property Rights and Interests:     ~20%
Forms of Ownership:                ~15%
Encumbrances and Liens:            ~25%
Transfer of Title:                 ~20%
Contracts (introductory):          ~20%

Strategy: Ownership forms and encumbrances (especially mortgages and liens) together determine close to half your property law score — prioritize these.

Property Rights: The Bundle of Rights

Real property ownership is described as a bundle of rights — a collection of individual rights that together constitute ownership:

Right to possess — occupy and use the property
Right to control — determine how it is used
Right to exclude — keep others out
Right to enjoy — use it without interference
Right to dispose — sell, lease, gift, or bequeath

Real vs. Personal Property:

Type	Description	Transfers With
Real property	Land + permanent improvements	Real estate deed
Personal property	Movable items	Bill of sale
Fixture	Personal property attached to real estate	Real estate deed (presumed)

Fixture tests (MARIA):

Method of attachment
Adaptation to the real estate
Relationship of the parties (buyer/seller vs. landlord/tenant)
Intention of the party who installed it
Agreement between parties

Estates in Land

An estate defines the nature and duration of ownership interest in real property:

Freehold Estates

Fee Simple Absolute:
- Highest form of ownership
- Perpetual, transferable, inheritable
- No conditions or limitations

Fee Simple Defeasible:
- Subject to a condition
- If condition violated → ownership reverts

Life Estate:
- Ownership lasts for the life of a designated person (measuring life)
- Life tenant may use, lease, and improve — but cannot waste
- Remainderman holds future interest

Non-Freehold (Leasehold) Estates

Type	Description
Estate for Years	Fixed start and end date; no notice required to terminate
Periodic Tenancy	Month-to-month or year-to-year; auto-renews; notice required
Tenancy at Will	No fixed term; either party may terminate with notice
Tenancy at Sufferance	Holdover tenant; illegal occupancy after lease ends

Forms of Co-Ownership

Tenancy in Common

Characteristics:
- Each owner holds an undivided fractional interest
- Interests need not be equal
- Each owner may independently convey their share
- No right of survivorship — interest passes per will or intestacy
- Any co-owner may force a partition action

Most common form for multiple investors in commercial real estate.

Joint Tenancy

Characteristics:
- Equal, undivided shares (must be equal percentages)
- Right of survivorship — deceased owner's share passes to surviving owners
- All four unities required at creation:
  Time (acquired simultaneously)
  Title (same deed)
  Interest (equal shares)
  Possession (same right of possession)
- Any owner may unilaterally sever joint tenancy by conveying their interest

Most common form for married couples who want right of survivorship without formal title changes.

Tenancy by the Entirety

Available only to legally married couples (in states that recognize it)
Strongest protection: neither spouse can unilaterally convey or encumber the property
Automatic right of survivorship
Protects against one spouse’s individual creditors in most states

Community Property

Recognized in 9 community property states (CA, TX, AZ, NV, NM, LA, ID, WA, WI)
Property acquired during marriage is owned equally by both spouses regardless of whose income purchased it

Encumbrances

An encumbrance is any claim, lien, charge, or liability against real property that diminishes its value or restricts its use.

Liens (Financial Encumbrances)

A lien is a charge against property as security for a debt or obligation.

Mortgage Lien:
- Voluntary lien created by the borrower to secure a loan
- In lien theory states: lender holds a lien (no title transfer)
- In title theory states: borrower gives title to lender (deed of trust)
- Non-possessory: borrower retains possession while mortgage is outstanding

Key mortgage lien characteristics:

Voluntary — created by the owner’s act (signing the mortgage)
Specific — attaches to one particular property
Priority based on recording date: “first in time, first in right”

Deed of Trust vs. Mortgage:

Feature	Mortgage (2-party)	Deed of Trust (3-party)
Parties	Borrower + Lender	Borrower, Trustee, Beneficiary (lender)
Foreclosure	Judicial (court-supervised)	Non-judicial (faster)
Common in	Eastern US states	Western US states (CA, TX, etc.)

Mechanic’s Lien

Filed by contractors, subcontractors, and materialmen for unpaid work
Involuntary lien — created by operation of law
Priority typically dates back to the start of work (not recording date) in most states

Judgment Lien

Arises from a court judgment against the property owner
Attaches to all property owned in the county where recorded
General lien (not specific to one property)

Tax Liens

Property tax lien: superior to all other liens (first priority)
Federal and state income tax liens: recorded with the county

Voluntary vs. Involuntary Liens

Type	Examples
Voluntary	Mortgage, deed of trust, home equity line
Involuntary	Property tax lien, mechanic’s lien, judgment lien, IRS lien

Non-Financial Encumbrances

Easements

The right to use another’s land for a specific purpose:

Types of Easements:
Easement Appurtenant:
  - Benefits an adjacent parcel (dominant estate)
  - Burdens the servient estate
  - Runs with the land (transfers with property)

Easement in Gross:
  - No dominant estate; benefits a person or entity
  - Examples: utility easements, billboard rights
  - Commercial gross easements may be assigned; personal may not

Creation methods:
  Express grant or reservation (in a deed)
  Implication (from prior use)
  Necessity (landlocked parcel)
  Prescription (open, continuous, hostile use for statutory period — similar to adverse possession)

Encroachments

When a structure or improvement physically crosses onto an adjacent property. Discovered through surveys. May cloud title.

Deed Restrictions / CC&Rs

Private restrictions placed in a deed or recorded Declaration of CC&Rs (Covenants, Conditions, and Restrictions). Common in HOA-governed communities.

Title Transfer: The Deed

A deed is the document used to transfer ownership of real property.

Essential Elements of a Valid Deed

1. Grantor with legal capacity (competent)
2. Grantee (identified with reasonable certainty)
3. Consideration (nominal or actual)
4. Granting words (words of conveyance)
5. Legal description of the property
6. Signature of the grantor (grantee need not sign)
7. Delivery and acceptance (deed must be delivered and accepted)

Types of Deeds

Deed Type	Warranties Given
General Warranty Deed	Highest protection — warrants title against all defects, past and present
Special Warranty Deed	Warrants only against grantor’s own acts; doesn’t warrant against prior owners’ defects
Quitclaim Deed	No warranties — conveys only whatever interest the grantor holds (if any)
Bargain and Sale Deed	Implies grantor has title, but no express warranties

Recording: Deeds must be recorded at the county recorder / register of deeds to give constructive notice to the public. Most states use a race-notice system: first to record without notice of a prior claim wins.

Practice Exam Questions

Q1. What is the primary difference between a joint tenancy and tenancy in common?

Joint tenancy has right of survivorship (deceased co-owner’s interest passes automatically to surviving co-owners). Tenancy in common has no right of survivorship — each co-owner’s interest passes by will or intestacy.

Q2. How does a mortgage lien get priority over a later-recorded mechanic’s lien?

Priority is generally determined by recording date. However, mechanic’s liens in most states relate back to the date work commenced. If work started before the mortgage was recorded, the mechanic’s lien may have superior priority. This is a construction loan risk.

Q3. What is the difference between a lien theory state and a title theory state?

In lien theory states, the borrower keeps title and the lender holds a lien. In title theory states (deed of trust), the borrower transfers title to a neutral trustee who holds it until the loan is repaid.

Q4. Which deed provides the greatest protection to the buyer?

A General Warranty Deed — the grantor warrants title against defects arising from the entire chain of title, not just the grantor’s own period of ownership.

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