2.1 Estates, Ownership Forms, Rights, and Interests

The Bundle of Rights

Ownership of real property is best understood as a bundle of rights rather than a single thing. Memorize the five sticks with the acronym PCEED: Possession, Control, Enjoyment, Exclusion, and Disposition. Each stick can be sold, leased, given away, or restricted independently of the others.

Because the sticks separate, an owner can lease the right of possession to a tenant while keeping disposition, or grant an easement that removes the right of exclusion over part of the land. Government powers (the PETE limits: Police power, Eminent domain, Taxation, Escheat) and private encumbrances also restrict the bundle.

Freehold vs. Leasehold Estates

An estate is the degree, quantity, and nature of an owner's interest. The first fork is freehold versus leasehold. A freehold estate is ownership of indefinite duration; a leasehold estate gives possession for a defined or renewable term but not ownership.

Freehold Estates

• Fee simple absolute - the highest, most complete ownership; inheritable, lasts forever, freely transferable. Assume fee simple unless the question says otherwise.
• Fee simple defeasible - ownership that can be lost if a condition is violated (e.g., "so long as used as a library").
• Life estate - lasts only for the life of a named person. When that life ends, title passes to a remainderman (named third party) or reverts to the grantor (reversion).

A life tenant may use and profit from the land but must not commit waste (damage that harms the future interest). The life tenant typically pays property taxes, insurance, and ordinary maintenance, but cannot sell more than a life estate.

Leasehold Estates (The Four)

Exam Tip: A tenant who stays past lease expiration without permission holds an estate at sufferance (holdover tenancy). An estate for years needs no termination notice because the end date is already known.

Forms of Co-Ownership

Severalty means one owner, despite the word sounding like "several." Tenancy in common (TIC) is the default when two or more buy together without specifying; shares can be unequal and pass to heirs on death, not to co-owners.

Joint Tenancy and the Four Unities

Joint tenancy carries the right of survivorship: when one joint tenant dies, their share passes automatically to the survivors, bypassing probate. Creating it requires the four unities (memorize T-TIP):

• Time - all owners take title at the same moment
• Title - all named in the same deed
• Interest - all hold equal shares
• Possession - all have equal right to the whole

If any unity is broken, the joint tenancy converts to a tenancy in common as to that share. The most common break is when one joint tenant sells or conveys their interest. Example: three joint tenants each hold 1/3. One sells to an outsider. The buyer holds 1/3 as a tenant in common, while the two remaining original owners still hold their 2/3 as joint tenants with each other.

Marital Property and Partition

Tenancy by the entirety is available only to married spouses and adds a layer of protection: neither spouse can convey or encumber the property alone, and a creditor of only one spouse generally cannot force a sale. Divorce typically converts it to a tenancy in common.

Community property states (nine of them) treat most assets acquired during marriage as owned 50/50; separate property (owned before marriage or received by gift/inheritance) stays separate.

When co-owners cannot agree, any co-owner may bring a partition action. Partition in kind physically divides the land; partition by sale is more common because most parcels cannot be split evenly, especially with a single house.

Encumbrances: Liens vs. Non-Money Encumbrances

An encumbrance is any claim or limit on title held by someone other than the owner. Two families:

• Liens - monetary claims (mortgage, property tax, judgment, mechanic's lien). They secure a debt and can lead to foreclosure.
• Non-money encumbrances - easements (right to use another's land), encroachments (a structure crossing a boundary), and deed restrictions/CC&Rs (private use limits).

An easement appurtenant benefits an adjacent parcel and "runs with the land" (the dominant tenement benefits, the servient tenement is burdened). An easement in gross benefits a person or company (e.g., a utility line) and does not require a neighboring parcel.

Lien Priority and a Worked Example

The general rule is first in time, first in right - liens are paid in the order recorded. The major exception: property tax and special assessment liens take priority over all other liens regardless of recording date.

Worked example. A property sells at foreclosure for $300,000. Recorded claims:

Despite recording last, the tax lien is paid first: $20,000. Then by date order the first mortgage ($250,000), leaving $300,000 - $20,000 - $250,000 = $30,000. The judgment creditor is owed $60,000 but receives only $30,000 and absorbs a $30,000 shortfall.

Exam Tip: If a question lists a tax lien recorded later than a mortgage, the tax lien still wins. Watch for that trap.