Many married couples prefer to buy homes in communities run by homeowners associations. While the HOA itself provides plenty of benefits, couples should also consider buying the home under a joint tenancy.
What Does Joint Tenancy Mean?
It is not uncommon to find couples owning homes under a joint tenancy in HOA communities. But, what is a joint tenancy anyway?
Simply put, a joint tenancy is a type of shared property ownership in which two or more people share equal rights and obligations to the property. While many people associate joint tenancies with married couples, it is not exclusive to that. In fact, non-married couples, relatives, and friends can enter a joint tenancy. It is even used by business associates to have joint ownership of property.
Joint Tenancy With Right of Survivorship
A joint tenancy essentially creates a legal relationship with a right of survivorship. This means that, if one owner dies, the surviving owner automatically assumes the deceased owner’s interest in the property without needing to go through probate.
For those unaware, probate is the process of administering the estate of a deceased person. This typically includes the property of the deceased. The process is often lengthy in nature and involves a lot of steps, including settling any debts and taxes.
How Does Joint Tenancy Work?
To form a joint tenancy, two or more parties purchase a house and sign a deed that names both owners as joint tenants. This means the parties involved in the joint tenancy share the benefits of ownership. Suppose they decide to rent out the property to someone else, the joint tenants each get an equal percentage of the profits. The same goes if the joint owners decide to sell the property.
In addition to the benefits, though, parties also share the obligations related to the property. That means they are equally responsible for mortgage payments, property maintenance, and property taxes. If one of the parties fails to pay their share, though, the other party or parties in the joint tenancy must step up and shoulder the obligation.
Tenancy in Common vs Joint Tenancy
What is the difference between joint tenancy and tenancy in common? There are three key differences between these two types of shared property ownership:
- Percentage of Share. In a joint tenancy, parties obtain an equal share of the property. In contrast, in a tenancy in common, parties don’t necessarily need to have an equal share. For instance, party A may own 60% of the property, while parties B and C each own 20% of the property.
- Time of Obtention. Joint tenants enter the legal relationship at the time of purchasing the property. In a tenancy in common, on the other hand, the share of ownership can be acquired at different times. This means a party can obtain a share of ownership years after other parties have already acquired their share.
- Right of Survivorship. Joint tenancies come with a right of survivorship, which is when the surviving owner automatically assumes the deceased owner’s interest in the property without going through the court system. Tenants in common, though, have no rights to survivorship.
It is worth noting that the default form of shared ownership for married couples can vary from state to state. In select states, married couples who buy property together enter a joint tenancy by default. Meanwhile, in other states, married couples automatically enter a tenancy in common when they purchase a home.
Joint Tenancy vs Tenancy by the Entirety
People often confuse joint tenancies with a tenancy by the entirety, otherwise known as a TBE. This is because joint tenancies and TBEs, unlike tenancies in common, both have a right of survivorship. But, there are also distinctions between these two types of ownership.
For one thing, parties do not need to be married to enter a joint tenancy, whereas a TBE has a marriage requirement. Some states, though, allow people to enter a TBE if they are in a domestic partnership. It is also important to note that not all states recognize tenancies by the entirety. In addition to Washington D.C., there are 25 states that currently allow TBEs, including Maryland, Massachusetts, New York, North Carolina, and Pennsylvania.
Another difference between joint tenancies and TBEs is the share of interest in the property. Parties in a joint tenancy each have an equal share of the property, but they don’t each get 100% interest. For instance, if two people are joint tenants, they each have a 50% interest in the property. On the other hand, parties in a TBE each get an undivided interest. This means that, in a TBE, tenants each have 100% interest in the property.
Lastly, the law recognizes married couples in a TBE set up as a single entity. In contrast, joint tenants are still recognized as separate legal entities.
The Pros and Cons of Joint Tenancy
Before couples enter a joint tenancy, they must first weigh out the pros and cons of the legal relationship. This way, they can make an informed decision when buying a home together.
Benefits
The main benefit of a joint tenancy is the right of survivorship. As explained above, joint tenants with the right of survivorship automatically assume the interest of the other party when they die. This helps the surviving owner avoid a lengthy probate process. During probate, a court will examine the deceased owner’s will to determine its validity. Then, the court will review the deceased’s assets and liabilities, after which it will proceed to administer the remaining assets to the heirs.
The probate process becomes even more confusing if the deceased owner fails to leave a will behind. A will dictates how a person wants their assets distributed. Without it, the probate court will not have any point of reference.
To avoid the long and arduous process of probate, couples can enter a joint tenancy. This way, when one party dies, their interests are simply transferred to the surviving party.
Another benefit of a joint tenancy is that parties share responsibility as well. With this, one owner can’t take out a loan on the property and leave the debt for the other owner to settle. This is particularly advantageous for couples who are planning to divorce.
Drawbacks
Because parties share the assets and liabilities of the property, relationship problems can make joint tenancies difficult. If one party wants to sell the home but the other party doesn’t, both are stuck at an impasse. This is because neither party can sell their assets without obtaining consent from the other party or parties.
The right of survivorship can also be a pitfall. Joint tenancy transfers all of the deceased’s interests and rights to the survivor. As such, even if the deceased owner wanted to bequeath the property’s value to an heir, the surviving owner has no legal obligation to fulfill that request.
The Bottom Line
Clearly, entering a joint tenancy in a homeowner’s association or any other community has its benefits, especially when compared to a tenancy in common and a tenancy by the entirety. Still, it is critical to consider all aspects of this legal relationship to make an informed decision.
Clark Simson Miller offers HOA management services to community associations in all shapes and sizes. Call us today at 865.315.7505 or contact us online to request a free proposal.
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