Holding Title

Before you reach the closing day, you will want to make a decision as to how you will "hold title" to the property. This decision has legal, tax and estate planning ramifications. Therefore, it may be prudent to consult an attorney or certified public accountant (CPA).

The following information is supplied for informational purposes and should not be relied upon as legal definitions.

Buying Alone

• Sole Ownership
• A single individual who has not been legally married.
• An unmarried individual who was married and is now legally divorced.
• A married individual who wishes to acquire title in his or her name alone. At the time of closing, the spouse of the buyer will be required to specifically disclaim or relinquish his or her right, title and interest to the property.

• Living Trust
  A living trust is created while an individual is alive and gives the individual control of the distribution of his or her estate. The individual transfers ownership of his or her property and assets into the trust.

Buying with Others

• Tenancy in Common
  Enables each partner in the property to sell, lease or will to his/her heirs that share of the property belonging to him/her.
• Who can take title? Any number of individuals.
• Ownership Division: Any number of interests, equal or unequal.
• Who holds title? A separate legal title to his undivided interest is held by each co-owner.
• Possession: Equal right of possession.

• Joint Tenancy
  Property owned by multiple individuals where if one of the owners dies, the remaining owners acquire the share of the deceased owner automatically.
• Who can take title? Any number of individuals.
• Ownership Division: Interests cannot be divided.
• Who holds title? There is only one title to the whole property.
• Possession: Equal right of possession.

• Community Property
  Property owned equally between a husband and wife. Each must sign all agreements and documents of transfer.
• Who can take title? Only a husband and wife.
• Ownership Division: Interests are equal.
• Who holds title? Similar to title being in a partnership, title is held in "community."
• Possession: Equal right of possession.

Additional Ways to Hold Title

• Corporation
  A corporation is a legal entity, created under state law, consisting of one or more shareholders but regarded under law as having essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures. Land owned by a corporation cannot be attached for personal debts or judgments rendered against any of its shareholders.

• A Partnership
  A partnership is an association of two or more persons who can carry on business for profit. A partnership may hold title to real property in the name of the partnership with partners having an equal or an unequal interest in the property.

• A Trust
  A trust is an arrangement whereby legal title to property is transferred by the grantor (or trustor) to a person called a trustee, to be held and managed by that person for the benefit of the people specified in the trust agreement, called beneficiaries.

Understanding Escrow

What is an escrow account?

An escrow account is used to collect and hold funds to pay your property taxes, homeowners insurance premiums or other charges when they become due.

The account is often established for you by your mortgage company when you take out your mortgage.  However, if an escrow account was not set up when you took out your mortgage, you may be able to do so now. 

Real estate taxes and insurance premiums must be paid regularly — typically, payments are due once or twice a year — and failure to pay these bills on time may cost you money in tax penalties or result in cancellation of your insurance coverage.

What are the benefits of an escrow account?

An escrow account helps you:

Most mortgage companies require an escrow account for mortgages with less than a 20 percent down payment.

How does an escrow account work?

Your monthly mortgage payment includes an amount for property taxes and insurance in addition to the amount you owe for principal and interest.

The amount of your monthly mortgage payment that is for taxes and insurance is placed by your mortgage company into an escrow account. The funds can be used only to pay taxes and insurance on your behalf.

Your mortgage company pays the taxes and insurance bills for you when they are due. Your mortgage company examines any changes in your tax and insurance costs (for example, your local government may change the amount of your real estate taxes). Your mortgage company sends you a statement each year showing the prior year's activity — amounts collected from you and placed in escrow as well as the payments made on your behalf — and showing any adjustments that may be needed based on changes in your tax and insurance costs.   

Here is a simplified example of how escrow payments are calculated:
Annual real estate taxes: *$1,800 ÷ 12 months = $150 per month
Annual property insurance: $720 ÷ 12 months = $60 per month
Total monthly taxes and insurance: $210

So in this example, $210 would be added to your total monthly mortgage payment and applied to your escrow account. You might hear your total monthly mortgage payment referred to as your “PITI” — for principal, interest, taxes and insurance.

Do you have an escrow account?

If you are not sure if you have an escrow account, check your monthly mortgage account statement or contact your mortgage company.  Your account statement will typically indicate your “Escrow Balance” and the amount of your total monthly mortgage payment that is applied to escrow.

Should you establish an escrow account?

If you do not have an escrow account, you may want to establish one. Ask your mortgage company for more information.

Want more information?

U.S. Department of Housing and Urban Development.

*The amounts you owe for real estate taxes and insurance will vary — this is a simplified example, and your mortgage company will likely use a more detailed calculation method that considers various factors. Ask your lender for a full explanation and an estimate of the escrow payment on your mortgage.