When you are buying a property with someone else, there are three different ways of going on title, each with significantly different results. You can either own it as joint tenants with a right of survivorship, as tenants in common holding a specific percentage, or as a matrimonial home, which is only applicable to legally married spouses (common law doesn’t count). In this post, I will explain the advantages and disadvantages of joint tenancy in real estate compared to other types of property ownership.
What is Joint Tenancy in Real Estate
Joint tenancy is a form of property co-ownership in which two or more individuals hold an equal share of the property with the right of survivorship. This means that upon the death of one joint tenant, their share automatically passes to the surviving joint tenants rather than being distributed according to a will. Joint tenancy can simplify the transfer of property and avoid probate, but it also requires careful consideration of potential implications for all parties involved.
For example, James (husband), Cathy (wife), and Lee (Daughter) are joint property owners – meaning they each own 33% of the property. If any one of them dies, the two remaining owners would split the decease’s share and each then own 50% of the property. All that is required is for a real estate lawyer to transfer the deed into the survivors’ names. No Will, no probate application to the Court, no estate administration taxes (1.5% for estate that is higher than $50,000) are needed.
Based on this, joint tenancy seems to be the best way to own property. In most cases, this may be true. However, there are 3 problems that come with joint tenancy that you should know before choosing this method of ownership. Let me explain in detail below.
Joint Tenancy in Real Estate cannot Override Matrimonial Home Designation
If your house is a Matrimonial Home but your spouse is NOT a joint owner, then when you pass, the right of survivorship would NOT apply.
Let’s say James (husband and father) and Lee (daughter) are joint tenants to their property. As well, Cathy (wife and mother) live in the property, although she is not on title. This property is now a matrimonial home. When James passes, the other joint owner, the daughter, would normally get 100% of the property via right of survivorship. But since the property is a matrimonial home and the wife is not a joint owner, there is NO right of survivorship. Instead, it’s deemed that when James passed, 50% of property goes to his estate, and 50% of property goes to the daughter. James’ 50% would not automatically go to his daughter but would instead pass down according to his Will or if he has no Will, according to Estate Legislation.
Impact on existing Mortgages – Joint Tenancy Owners do NOT need to get a new loan if one owner dies
In most cases, if you want to add or remove someone from title, but there is a mortgage, you must reapply for a new mortgage. This can be huge problem since your mortgage may not be up for renewal, so prepayment penalties could apply. Also, most people do not want to get a new mortgage just to add someone as an owner.
However, if the property was owned jointly and one or more owner(s) dies, the remaining owner does not need to pay off the existing mortgage. The deceased gets removed from title and the survivor remains the owner. This is a major advantage to joint ownership.
For example, if James and Lee are not joint owners and James was the only one on title, then, before Lee could inherit the property according to James’ Will, Lee MUST get a new mortgage in her own name.
In contrast, if James and Lee owned the property as joint tenants, then when James died, Lee would get the house via right of survivorship. When a real estate lawyer transfers the property from James and Lee’s name to just Lee’s name, she does NOT need to apply for a new mortgage.
That said, when it comes time to renew the mortgage, the bank will likely require the surviving owner to requalify for a new mortgage on their own.
Impact of Outstanding Unpaid Lawsuits and Debts against a Joint Owner
Just because someone passes away, it does not mean their debts magically disappear. In fact, if their debt has been registered against an asset they own, then any new owner of that asset will be responsible for the debt.
For example, if James had unpaid debt from a lawsuit he lost, the debt could be registered in his name. After he dies, Lee wants to inherit the property via survivorship. When the real estate lawyer tries to do the transfer, the lawyer must first search to see if James has any unpaid lawsuits (legally called “writs”). If there are no writs, then Lee gets the property no problem.
But if there are writs, then Lee (as the surviving property owner) would have a choice to make. Lee can either pay out the amount owing and inherit the property debt-free; or Lee can inherit the property WITH the writ/debt attached. Nevertheless, if Lee inherit this writ, she must figure out some way to pay it off before she sells it in the future. No one will buy a property with debts attached to it. Of course, the more Lee drags on paying the writ, the more interest penalties will accumulate, making it increasingly expensive for her to pay it off in the future.
Conclusion
There are many pros and cons to joint tenancy in real estate ownership. The biggest advantage is that you can avoid probate and the 1.5% Estate Administration Taxes. The biggest disadvantage is that you cannot give the property to a non-joint-owner when you passes.
Additionally, as noted above, there are very special rules that apply to matrimonial properties. To recap:
- You cannot use joint tenancy to over-ride a spouse’s claim to matrimonial home; meaning that if the spouse is not a joint owner, then when the husband passes, his 50% goes into his estate and does not go to the surviving joint owner;
- when a new owner inherits a house through joint ownership, they do not need to get a new mortgage immediately, which is a major advantage for most people
- Some debts can be inherited by the surviving owner, if the debts attach to the property (e.g. writs, property taxes, mortgages)
The lawyers at Varity Law Pro. Corp. have helped countless families and businesses decide on the ownership method that is specifically suited for their situation.
If you have any questions about property ownership and transfer, feel free to book a 1st free consultation with us here: https://calendly.com/sabrina-668/1stfreeconsult
