Real Property Ownership

Transcription

1 7 Real Property Ownership Chapter Overview This chapter provides a broad overview of the legal components involved in the ownership of real estate. Important Terminology REAL PROPERTY OWNERSHIP Real property ownership refers to the rights, interests, and benefits of ownership of real estate. Ownership of real accession bill of sale bundle of rights common elements lessee estate gives the property owner the rights condominium lessor condominium unit life estate to the physical land at control life tenant and below the earth s cooperative limited common elements surface including disposition management and control any structures that eminent domain marital property are permanently escheat mixed property attached to it, as well estate in land partition suit as rights to the air exclude percentage interests located above it. The fee simple absolute estate personal property/chattel United States operates under a system fee simple defeasible estate police power fixtures possession in which a purchaser freehold estate predetermined date property of real estate is actually buying the rights grantee probate grantor quiet enjoyment of ownership held by homestead severalty the seller. individual property survivorship marital property These rights are joint tenancy taxation called the bundle of leasehold estate tenancy in common rights and include time-share the rights of: total unity trade fixture/chattel fixture 1. Disposition - The right to sell, lease, and will property away. 2. Encumber - The right to mortgage or give another party an interest in property. 3. Exclude - The right to have sole use of a property. 4. Possession - The right to occupy the property. 5. Quiet Enjoyment - The right to have uninterrupted use of the property without interference from former owners or tenants. 6. Control - The right to use the property in a lawful manner. 91

2 REAL ESTATE SALES The bundle of rights may also be referred to as the sticks of ownership. This concept comes from the Middle Ages where the seller symbolized the transfer of property to the buyer by giving them a bundle of sticks from a tree on the property. The buyer, by accepting the sticks, owned the tree the sticks came from and the land to which the tree was attached. Today, to transfer ownership a deed is used but the symbolism of the bundle of rights remains. REAL VERSUS PERSONAL PROPERTY Personal property, also called chattel, is characterized by being moveable or portable. Examples of personal property include furniture, draperies, bank accounts and crops. Personal property is not considered part of the real estate and is not automatically sold with the real estate. According to the Wisconsin WB-11 Residential Offer to Purchase lines At time of Buyer s occupancy, Property shall be in broom swept condition and free of all debris and personal property except for personal property belonging to current tenants, or that sold to Buyer or left with Buyer s consent. This language is incorporated into the offer to notify the seller that they do not have the right to leave personal property behind unless the buyer agrees. If a large amount of personal property is being sold with the real estate, a Bill of Sale is used to transfer ownership to the buyer for those items. The state created a Bill of Sale form. Essentially this form transfers the seller s title in the listed personal property to the buyer. However, if the seller is transferring an item that has its own title, for instance a car, then the car s title is needed to properly transfer title from one owner to another. The Bill of Sale should not be given to the buyer by the seller until closing. This is important because this document in theory transfers title from one to the other. The state approved Bill of Sale is the WB-25. Only the seller s signature is required on this form. All of the personal property being transferred is listed and itemized. This form is used only in the event personal property is being sold with real estate. The Bill of Sale form is discussed further in a later chapter. Fixtures How does one know when property is personal property? First it must be determined if something is a fixture. Fixtures are classified as items that once were personal property which have become permanently attached to the real estate. Fixtures are real property and are automatically sold with the real estate unless a different agreement is reached. Examples of fixtures include wall-to-wall carpeting, light fixtures, heating and central air conditioning units, and built-in cabinets. For a listing of what the state of Wisconsin considers to be a fixture, refer to the residential listing contract or offer to purchase. A court applies the following if an agreement is lacking information as to whether an item is a fixture: 1. How is the item attached? Can the item be easily removed without damaging the property to which it s attached? 2. How is it adapted? Is the item being used as personal property or real property? 3. What was the intent? Did the party that installed the property intend for it to be used as personal property or as a fixture? 4. Is there an agreement? Does the sales contract state if the property is to be treated as real or personal property? Fixtures, in many situations, may also be classified as improvements. Improvements are valuable additions made to property that amount to more than repairs, costing labor and capital, and are intended to enhance the value of the property. 2

3 Real Property Ownership - 7 Trade Fixtures What about nonresidential settings? What is determined to be a fixture in a commercial lease? Trade fixtures, also called chattel fixtures, are used for the purpose of conducting business, such as shelving and counters attached by a tenant for their retail store. Trade fixtures are considered personal property, owned by a tenant, and are attached to a rented space or building with the intent of removing the article at the termination of a lease. Trade fixtures that are not removed at the termination of the lease are considered abandoned and become the real property of the landlord. Acquiring property this way is known as accession. There is no established statutory time frame that needs to be met before accession takes place. This time frame is usually agreed upon in the lease between the landlord and tenant. Mobile Homes Mobile homes tend to cause confusion as to whether they are treated as real or personal property. A mobile home is a prefabricated trailer-type housing unit that may or may not be attached to the land. Because a mobile home can be removed from its attachment and hauled to a new location, the mobile home possesses features of both real and personal property. Wisconsin considers a mobile home to be personal property unless certain conditions are met. If the mobile home is connected to utilities and is set upon a foundation upon land that is owned by the mobile home owner, then it can be treated as real property. Unless the conditions mentioned above are met, a mobile home is considered personal property and a licensee should not be involved in the sale of personal property. Under certain circumstances Wisconsin law allows a real estate licensee to participate in the sale of one mobile home per year. In these rare situations it is inappropriate to use the state approved real estate contracts because the state approved real estate contracts transfer an ownership in real property not personal property. Licensees should consult their broker regarding the company s mobile home sale policy. ESTATES IN LAND When an individual has the bundle of rights or sticks of ownership, he or she has what is referred to as an estate in land. An estate in land allows for possession of the land and is measurable by a duration. It is a recognized interest in the use, possession, control, and disposition a person has in land and defines the nature, degree, extent, and duration of a person s ownership. Estates in land are divided into two primary categories, freehold and leasehold. 1. Freehold estate: A real property interest in land that lasts for an unlimited duration. The owner maintains the legal bundle of rights until they choose to sell the property, transfer it to another party as a gift, or die and will the prop erty away to heirs. 2. Leasehold estate: Generally classified as a personal property interest in land that lasts for a limited or fixed duration. Under a leasehold estate a tenant has the right to possess the property for the period of time set forth under the lease. At the end of the lease term the bundle of rights revert back to the landlord. A leasehold estate is a personal property interest because it stays in place beyond the death of the landlord or tenant. 3

4 REAL ESTATE SALES Freehold Estates There are three major types of freehold estates. All of them allow for ownership and possession of a property. However, the grantee s bundle of rights is limited under two of the estates; fee simple defeasible and life estates. A. Fee simple absolute (fee simple) is the maximum ownership or the greatest estate in land. In the majority of real estate transactions the buyer (grantee) is receiving from the seller (grantor) a fee simple estate. The duration of ownership is forever, meaning that the owner has the full bundle of rights until they choose to dispose of the property. When a property is held in fee simple, the rights to the property are limited only by certain government powers. Federal, state and local governments have the right to create laws to protect public health, safety, and welfare. Because government powers are for the general welfare of the community, these limitations on the ownership of real estate supercede the rights of the individual. The government powers are: 1. Police Power (P): Power vested in the state and passed to municipalities through enabling acts in order to preserve order, protect public health and safety, and promote general welfare (zoning). 2. Eminent Domain (E): The right of the government to take private land for public use. This power is exercised through condemnation. The government must be able to prove that the taking of the land is in the public interest and just compensation must be paid to the owner of the land. 3. Taxation (T): A charge on real estate to raise funds to meet the public need. 4. Escheat (E): When an owner dies without a will, and without heirs, the property goes to the state or county. The purpose of escheat is to prevent a piece of property from becoming ownerless, or abandoned. B. Fee simple defeasible estates continue indefinitely into the future as long as the terms of the estate are not violated. Ownership is conditioned upon the occurrence or the nonoccurrence of an event. A fee simple defeasible estate occurs when a grantee receives title to real estate, however the title is encumbered with a deed condition that requires the property to be used in a certain way. For example, a city receives land and is told that the land must be used as a park. If the land is ever used for some other purpose, for example commercial, legal title reverts to another party, typically, already designated by the grantor. It is very unlikely that a real estate licensee would be involved in a fee simple defeasible estate. Any trans action involving a fee simple defeasible estate should be referred to an attorney. C. Life estates are estates in land where ownership is based upon the life of the property owner or of some other designated person. When the designated person dies the prop erty passes to future owners based upon the terms of the life estate; therefore, life estates are not inheritable. The owner of a property under a life estate is called a life tenant. An example of a life estate would be where a hospital, knowing that it is going to be expanding purchases the surrounding properties and then gives the property back to each property owner as a life estate. The owners of the properties receive market value for their homes and are allowed to live there for the duration of their lives. As each homeowner (life tenant) dies the property would revert back to the hospital (grantor) and in time the hospital would have all the land it needs to expand. A life ten ant is viewed as the legal owner of the property during his/her lifetime. 4

5 Real Property Ownership - 7 A life tenant is: 1. Entitled to possession, ordinary use, and profits of the property. 2. Obligated to keep the premises in a reasonable state of repair so that the property conveyed back to the grantor is in good condition and has maintained its overall value. 3. Obligated to pay taxes, special assessments and other debts of the property. 4. Prohibited from creating any interest that extends beyond the life estate. Leasehold Estates A leasehold estate, under common law, is generally classified as a personal property estate in land that transfers from the lessor (landlord) to the lessee (tenant). The name of the document that is used to transfer this estate is a lease. The lease defines the period of time the lessee has to exclusively use and possess the property, the amount of money required for that use, and any other duties or obligations of the landlord and tenant. The tenant is then considered to hold a less-than-freehold estate in land. Leasehold estates are often times referred to as lessthan-freehold estates because the entire bundle of rights does not pass to the tenant. When a tenant and landlord enter into a lease the rights of exclusion, possession, quiet enjoyment, and control pass to the tenant while the landlord retains a reversionary interest. Simply stated, the tenant receives all the bundle of rights or sticks of ownership except disposition and the right to encumber. When the leasehold estate expires, the above-mentioned rights automatically transfer back to the landlord (rights revert back to the landlord therefore the landlord has a reversionary interest). Because a lease is a personal property interest in land the leasehold estate stays in place beyond the death of the lessor or lessee; it is binding upon the heirs of the deceased party. A lease also stays in place upon transfer of title. The residential listing contract states that if the property is currently leased and the lease(s) extends beyond closing, the seller shall assign his rights under the lease(s) and transfer all security deposits and prepaid rents to the buyer at closing. The seller remains liable under the lease(s) unless released by the tenant. The seller is cautioned to consider obtaining an indemnification agreement from the buyer for liabilities under the lease(s) unless released by tenants. An indemnification agreement is an agreement to reimburse or compensate someone for a loss. Consequently, if the new owner/landlord breaches a term in the lease and the old owner/landlord was damaged in some way, the buyer is required to compensate the seller for any losses. Lessor/Lessee Obligations Neither the landlord nor the tenant is required to make any improvements to the property unless specifically stated in the terms of the lease. The landlord is required, however, to keep the property in habitable condition, and the tenant is required to return the premises in the same condition it was in when receiving it. The lease agreement should address whether a tenant has the right to install fixtures during the lease term and what happens to the fixtures upon expiration of the lease. The Department of Agriculture, Trade and Consumer Protection (DATCP) has rules regulating the residential rental practice. Where security deposits are concerned a landlord must notify the tenant of the following prior to receiving the security deposit: 1. The tenant has seven days to inspect the dwelling unit at the beginning of the tenancy. 2. The tenant has seven days to request a list of physical damages or defects, if any, charged to the previous tenant s security deposit. 5

6 REAL ESTATE SALES Within 21 days of surrender of the rental premises the landlord must return the full amount of the security deposit, less any amounts properly withheld by the landlord. The definition of surrender varies based upon circumstance. The various definitions of surrender are: 1. If the tenant vacates before the last day of tenancy, surrender occurs when the landlord receives the written notice that the tenant has vacated. 2. If the tenant vacates the premises after the last day of tenancy, surrender occurs when the landlord learns that the tenant has vacated. 3. If the tenant is evicted, surrender occurs when a writ of restitution is executed or the landlord learns that the tenant has vacated, whichever occurs first. 4. If a tenant surrenders the premises without leaving a forwarding address, the landlord may mail the security deposit to the tenant s last known address. The security deposit check should be made payable to all tenants who are parties to the rental agreement, unless the tenants designate a payee in writing. Security deposits can be withheld for any of the following even if the parties agree to it in writing: 1. Tenant damage, waste or neglect of the premises. 2. Unpaid rent for which the tenant is legally responsible. 3. Payment which the tenant owes under the rental agreement for utility service. 4. Unpaid mobile home parking fees. Security deposits may not be withheld for the normal wear and tear on a property. This means a landlord cannot withhold money from a tenant s security deposit for routine carpet cleaning. Prohibited practices under DATCP are: 1. Landlords may not rent or advertise for rent a premises which has been placarded and condemned for human habitation. 2. No landlord may enter a dwelling unit during tenancy except to inspect the premises, make repairs, or show the premises to prospective tenants or purchasers. 3. No landlord may enter a dwelling unit during tenancy except upon advance notice and at reasonable times. Advance notice means at least 12 hours advance notice unless the tenant, upon being notified of the proposed entry consents to a shorter time period. A local municipality cannot make the required hours less than 12 hours, but can create a period of time greater than 12 hours. 4. A landlord may enter a premises if the tenant, knowing the proposed time of entry, requests or consents in advance to the entry, a health and safety emergency exists, or the tenant is absent and the landlord reasonably believes that entry is necessary to protect the premises from damage. 5. No landlord may enter a dwelling unit during tenancy without first announcing his or her presence to persons who may be present in the dwelling unit, identifying himself or herself upon request. 6

7 Real Property Ownership Landlords cannot enforce an automatic renewal or extension provision unless the tenant was given separate written notice of the pending automatic renewal at least 15 days, but no more than 30 days before its stated effective date. 7. No landlord may seize or hold a tenant s personal property, or prevent the tenant from taking possession of the tenant s personal property. 8. No landlord shall terminate a tenancy or give notice preventing the automatic renewal of a lease, or constructively evict a tenant by any means including the termination or substantial reduction of heat, water or electricity to the dwelling unit in retaliation against a tenant because the tenant has: a) Reported a law violation or a building or housing code to any governmental authority, or filed suit alleging such violation. b) Joined or attempted to organize a tenant s union or association c) Asserted, or attempted to assert any right specifically accorded to tenants under state or local law. 9. No landlord shall fail to deliver possession of the dwelling unit to the tenant at the time agreed upon in the rental agreement, except where the landlord is unable to deliver possession because of circumstances beyond the landlord s control. 10. No landlord may exclude, forcibly evict or constructively evict a tenant from a dwelling unit. 11. Late rent fees and penalties: a) No landlord may charge a late rent fee or late rent penalty to a tenant, except as specifically provided under the rental agreement. b) Before charging a late rent fee or late rent penalty to a tenant, a landlord shall apply all rent prepayments received from that tenant to offset the amount of rent owed by the tenant. c) No landlord may charge any tenant a fee or penalty for nonpayment of a late rent fee or late rent penalty. FORMS OF OWNERSHIP As discussed, an estate in land defines the nature, degree, extent, and duration of a person s ownership and the owner of a property must designate how to legally hold the estate. A licensee cannot give advice on how an owner should hold title. However, a basic understanding of the different forms of ownership is necessary when practicing real estate. Severalty An interest that is severed from all others. The owner holds, exclusively, the bundle of rights. No other party has an interest in the ownership or transfer of title to the property. Co-Ownership The title to real estate is held by more than one owner. 1. Tenancy in Common (No Survivorship Between Owners) In a tenancy in common the co-owners hold an undivided fractional interest in the property. This means they have equal rights to possess the property even though they may not own equal shares. For example, one owner owns 40 percent and the other two owners own 30 percent each. The three people coown a property. 7

8 REAL ESTATE SALES The individual owners under a tenancy in common hold their interest in severalty. This means that each owner has the ability to control his/her individual ownership interest. An owner can sell their ownership interest without the consent of the others. Upon death, an owner s interest goes to their designated heirs; it does not automatically go to the surviving owners. To simplify discrepancies, the state created a presumption of title for co-owners. If nothing is expressed to the contrary in the deed (the legal document used to transfer title), the state assumes that co-owners are holding title as tenants in common and that they all have an equal interest in the property. To avoid the assumption of tenants in common with equal interest, the legal document must state, as joint tenants with the right of survivorship. A B A and B own a property as tenants in common. A C Upon B s death, title would transfer to C, as per B s will. 2. Joint Tenancy (Survivorship Between Owners) Co-owners may also choose to hold title as joint tenants. A joint tenancy can only be created by will or deed. This means either the will of a deceased person dictates that the heirs hold title to the property as joint tenants or it is specifically stated in the deed that the owners are joint tenants. Once again, if the deed is silent as to how the owners hold title, the law assumes tenancy in common with equal shares. Under a joint tenancy there needs to be a total unity of ownership. This means all owners are considered to have equal rights to possession, they hold an equal ownership interest and they acquired their interest at the same time and by the same document. Total unity also dictates that there is a right of survivorship between owners. This means if one of the owners dies the surviving owners automatically get the deceased owner s interest; the property does not have to pass through the probate process. Briefly, probate is the formal judicial proceedings that occur to prove or confirm the validity of a will, to collect the assets of a defendant s estate, to pay debts and taxes, and to determine the persons to whom the remainder of the estate is to pass. Even though total unity exists an owner can sell without the consent of the other owners. The new owner, however, is not able to take title as a joint tenant because their interest is not acquired at the same time. The new owner takes title as a tenant in common. The remaining owner s interest as joint tenants remains the same. A, B, and C hold title as joint tenants in equal interests of B sells his portion to D. D cannot be a joint tenant with A and C because D took title at a different time. Therefore, A and C still hold title as joint tenants and D is a tenant in common. Each still has a 33.3 interest. If A dies, C automatically receives A s share because A and C are joint tenants with a right of survivorship. C and D now hold title as tenants in common. D has a one-third interest and C has a two-third interest. 8

9 Real Property Ownership - 7 A B C A, B and C hold title as joint tenants. B sells to D A D C A and C continue to hold title as joint tenants. D holds title as a tenant in common C D C A dies. A s title would transfer to C, because joint tenants have a right of survivorship. C and D now hold title as tenants in common (no survivorship). Under a tenancy in common and a joint tenancy, the co-owners can file a partition suit to dissolve the tenancy. A partition suit is a legal remedy used when all of the parties do not voluntarily agree to sell. The courts, if unable to divide the property between the remaining owners without destroying its value, sell the property as a whole and then distribute the proceeds to the owners according to their fractional interest in the property. WISCONSIN MARITAL PROPERTY On January 1, 1986 Wisconsin s Marital Property Act became effective. Due to the passing of this act, the state considers each spouse to own an undivided one-half interest in the property either spouse acquires after the couple s determination date. A couple s determination date is the last to occur of the: couple s date of marriage, the married couple s establishment of a domicile within Wisconsin, or January 1, The Marital Property Act provides for classification of property acquired after a married couple s determination date. The property may be classified, marital, individual, mixed or survivorship. The act also addresses property acquired before the determination date. The state acknowledges certain exceptions to the classification of property after the determination date. However, the state presumes all property between spouses to be shared marital property, which means each spouse owns an undivided one-half interest in the marital property. The following are the different classifications: Marital Property: Including, but not limited to all property and salaries of married persons. Each spouse has an undivided one-half interest in each item of marital property without regard to the actual monetary value of a spouse s contribution to the asset. A spouse can convey his or her one-half interest in a marital property asset, as could a tenant in common. However, a spouse has an interest in the sale proceeds. Upon the death of a spouse, one-half of all marital property assets become part of the estate of the deceased spouse and may be distributed pursuant to the will of the deceased spouse. Individual Property: Property one spouse received as gifts or inheritance; property acquired prior to marriage; income from individual property provided it has been designated as individual property; appreciation of value from individual property; property declared by decree or marital property agreement designating it as the individual property of the spouse. Property can be classified as individual property for several other reasons as well. 9

10 REAL ESTATE SALES Mixed Property: Combination of both individual and marital property. It is always treated as marital property. It is very important to keep individual property separate from marital property. If a non-owner spouse uses substantial labor, effort, inventiveness, physical, or intellectual skill, creativity or managerial activity which results in substantial appreciation of a property, the property is treated as marital property unless the spouse that owns the individual property provides reasonable compensation to the non-owner spouse. Predetermined Date Property: Applies to properties acquired by married couples or marital domiciles established before January 1, This property is reclassified as marital property in the event of divorce or death of one of the spouses. Survivorship Marital Property: Allows a property to pass to the surviving spouse without going through the probate process. If spouses take title as joint tenants then the property will be classified as survivorship marital property. A married couple s homestead is automatically held as survivorship marital property if nothing to the contrary is mentioned in the deed or a marital property agreement. A homestead is defined as the home or dwelling of a married person and so much of the land surrounding it as is reasonably necessary for use of the dwelling as a home, but not less than one-fourth acre, if available, and not exceeding 40 acres. The definition is intended to be broad and covers such properties as a duplex so long as the couple or one of the spouses reside in one of the units. MANAGEMENT AND CONTROL Management and control determines who has the right to control the property. Management and control determines who has the authority to sell, lease, or mortgage the real estate. If the spouses are designated as John or Mary Smith they may work independently of each other. This means, only one spouse s signature is required to transfer title. If they are designated as John and Mary Smith, the signatures of both spouses are required. A homestead property requires the signature of both spouses in order to transfer title. This protects a spouse from the mortgage, sale, or transfer of title of the homestead property without his/her knowledge. Mary owns a property. She then meets and marries John and they live in Mary s house. Mary decides to sell the property. Because it is a homestead property, both Mary and John s signatures are required to transfer title. CONDOMINIUM OWNERSHIP The condominium form of ownership takes what otherwise might have been an apartment or townhouse and permits individual sale of the separate dwelling units. A condominium is a form of ownership of real property, just like a joint tenancy or a tenancy in common. It is important that a licensee has a basic understanding of the following components of condominium ownership. In the beginning, condominiums were generally apartment buildings that were sold off unit-by-unit. Remember, condominium is a form of ownership, not a style of property. A condominium can be apartment-type units, multiple-units, side-by-side units, or a single-family home freestanding structure. It is a shared form of ownership. Examples: airplane hangars, boat slips, parking spaces, etc. 10

11 Real Property Ownership - 7 A unit is the part of the condominium intended for independent use. The unit owner is entitled to exclusive ownership and possession of his or her unit. The unit owner can use the unit as defined by the condominium declaration and plat. This definition must be carefully reviewed to determine whether, for example, a side-by-side townhouse unit includes just the cubicles of air within the interior walls, or whether it also includes the finished surfaces of the interior walls (wallpaper, paint, etc.). Typically an individual unit is purchased in exclusive possession, which most often includes the interior of the outside wall. Common elements means everything else in the condominium that is not a unit. In a typical residential condominium common elements may include grounds, swimming pool, exterior of the building, landscaping, outdoor lighting, elevators, fitness rooms, etc. A unit, together with its undivided interests in the common elements, is an interest in real estate. Basically, the unit is owned in severalty and the common elements are owned as a tenancy-in-common. Limited common elements are elements of the condominium which are identified in the declaration or plat as reserved for the exclusive use of one or more unit owners. Basically, you don t own it, except for your undivided percentage interest in the common elements, but you are the only one who may use it. Limited common elements are owned by everyone but are limited to certain owners use. Typically they are reserved for the use of just one unit. Examples of limited common elements may be a storage area, patio, balcony, garage, parking space, or boat slip. The declaration or bylaws may permit unit owners to transfer limited common elements by deed to other unit owners. Accordingly, unit owners may be able to swap a limited common element parking space that is not needed using quitclaim deeds. The other primary advantage of limited common elements relates to maintenance. If an element such as a patio is a limited common element it may be more likely that the maintenance responsibilities, at least for major repairs, will be assigned to the association rather than to the individual unit owner. The primary disadvantage to having a patio as a limited common element rather than part of the unit is that there may be more restrictions on usage, such as placement of patio furniture. Every unit owner owns an undivided interest in the common element, as a tenant in common with the other unit owners, in the percentage set forth in the declaration. This tenancy in common percentage interest is referred to as the unit owner s percentage interests. The percentage interest determines the: 1. Extent of the unit owner s undivided ownership interest in the common elements. 2. Extent of the unit owner s responsibilities for common expenses. 3. Unit owner s voting power. 4. Amount of a unit owner s proceeds in the event that the condominium is terminated. Condominium declarations may establish percentage interests that are equal for all of the units, in proportion to the square footage of the respective units that are based upon the location or value of the different units, or based upon some other formula stated in the declaration. The condominium association is made up of all unit owners acting together as a group to manage and maintain the condominium property collectively owned. Every unit owner is automatically a member of the association, and only unit owners (and the project developer or declarant, in the case of a new project) may be members of the association. The association is required by statute to administer and govern the condominium. 11

12 REAL ESTATE SALES Condominium reserve accounts are managed by the association for the purpose of saving unit owners from facing large, unexpected out-of-pocket expenditures in the future. For example, if a special assessment is needed for roof or pavement replacement and there are no reserve funds accumulated for this purpose, the unit owners will likely face a large special assessment payment. If unit owners are repeatedly expected to pay large special assessments for repairs and improvements that were not planned for in the budget and in the reserve accounts, unit owners may come to the point where they cannot afford repeated lump-sum payments and the nancial well-being of the association may be jeopardized. In addition, lenders may be reluctant to provide mortgage loans for condominiums that do not have adequate reserves, and insurance companies view condominium associations without adequate reserves as bad risks. An association that has substantial reserve funds is likely an association that has established a major maintenance plan and has scheduled periodic repairs and improvements to the common elements. Under Wisconsin law, condominium associations are not legally required to establish reserve funds, as is the case in other states. Accordingly, this is an important item to be discussed with any seller or buyer. COOPERATIVE OWNERSHIP Under a cooperative form of ownership (also called co-op), owners purchase stock in a corporation that holds title to a building. The owner receives a proprietary lease granting occupancy of a specific unit in the building. The corporation holds title to the land and building and the individuals (shareholders) lease the unit. The individuals are both tenants and shareholders. The monthly payment on this lease is the owner s share of the corporation s expenses such as mortgages and real estate taxes. The owner of a co-op does not own the unit as they would in a condominium. The owner owns stock in a corporation and the corporation s main asset is the building in which they live. Voting power in a cooperative is usually one vote per unit as opposed to voting power in a condominium which may be based on the size or value of the unit. Upon resale of a cooperative unit the owner must usually receive the board of director s approval of the proposed purchaser. A major drawback of cooperative ownership is that all owners are responsible for the financial status of the corporation. In the event an owner defaults on taxes or mortgage payments the other owners are responsible to cure this default. The corporation receives financing through a blanket mortgage for the entire property. If payments are not made on the corporation s mortgage, the leases may be terminated as a result of foreclosure. Due to the threat of possible foreclosure, tenants/shareholders are concerned about others paying. The tenants/shareholders are not liable for the entire blanket mortgage of the corporation. Rather each tenant is liable for their share of the cooperative s expenses. The Wisconsin real estate sales license does not allow for a licensee s participation in the sale of individual cooperative units unless it is incidental to their real estate practice. A licensee cannot sell stock because stock is not real property. In certain areas of Wisconsin, however, real estate licensees are involved in the sale of cooperative units as a matter of practice. The state approved contracts are not designed for use in the sale of a cooperative unit. TIME-SHARE OWNERSHIP An owner of a time-share has an interest in real property with the right to use the facility for a fixed or variable time period. To transfer ownership of a time-share one uses a deed. Under time-sharing forms of ownership, potential purchasers of property buy fixed or floating time periods for use of a specific unit within a project. Common expenses are prorated among the owners. Time-shares are very common in resort communities. 12

13 CHAPTER 70 GENERAL PROPERTY TAXES * Only the portions of chapter 70 relevant to the state license exam are provided Mobile homes. (1) A mobile home, as defined in s (1) (d), is an improvement to real property if it is connected to utilities and is set upon a foundation upon land which is owned by the mobile home owner. In this section, a mobile home is set upon a foundation if it is off its wheels and is set upon some other support. (2) A mobile home, as defined in s (1) (d), is personal property if the land upon which it is located is not owned by the mobile home owner or if the mobile home is not set upon a foundation or connected to utilities. History: 1983 a. 342; 1985 a. 332 s. 253; 1999 a. 150 s Under sub. (1), a mobile home is an improvement to real property if the home is resting for more than a temporary time, in whole or in part, on some means of support other than its wheels. Ahrens v. Town of Fulton, 2002 WI 29, 251 Wis. 2d 135, 641N.W.2d 423. Chapter 7 Appendix - Page 1

14 CHAPTER 766 PROPERTY RIGHTS OF MARRIED PERSONS; MARITAL PROPERTY Responsibility between spouses Classification of property of spouses Management and control of property of spouses Optional forms of holding property; survivorship ownership Classification of homestead Mixed property Responsibility between spouses. (1) Each spouse shall act in good faith with respect to the other spouse in matters involving marital property or other property of the other spouse. This obligation may not be varied by a marital property agreement. (2) Management and control by a spouse of that spouse s property that is not marital property in a manner that limits, diminishes or fails to produce income from that property does not violate sub. (1). History: 1983 a Intentional misrepresentation is a breach of the duty of good faith for which the exclusive pre divorce remedy is s (1). Gardner v. Gardner, 175 Wis. 2d 420, 499 N.W.2d 266 (Ct. App. 1993) Classification of property of spouses. (1) All property of spouses is marital property except that which is classified otherwise by this chapter and that which is described in sub. (8). (2) All property of spouses is presumed to be marital property. (3) Each spouse has a present undivided one half interest in each item of marital property, but the marital property interest of the nonemployee spouse in a deferred employment benefit plan or in assets in an individual retirement account that are traceable to the rollover of a deferred employment benefit plan terminates at the death of the nonemployee spouse if he or she predeceases the employee spouse. (4) Except as provided under subs. (7) (a), (7p) and (10), income earned or accrued by a spouse or attributable to property of a spouse during marriage and after the determination date is marital property. (5) The transfer of property to a trust does not by itself change the classification of the property. (6) Property owned at a marriage which occurs after 12:01 a.m. on January 1, 1986, is individual property of the owning spouse if, at the marriage, both spouses are domiciled in this state. (7) Property acquired by a spouse during marriage and after the determination date is individual property if acquired by any of the following means: (a) By gift during lifetime or by a disposition at death by a 3 rd person to that spouse and not to both spouses. A distribution of principal or income from a trust created by a 3rd person to one spouse is the individual property of that spouse unless the trust provides otherwise. (b) In exchange for or with the proceeds of other individual property of the spouse. (c) From appreciation of the spouse s individual property except to the extent that the appreciation is classified as marital property under s (d) By a decree, marital property agreement or reclassification under sub. (10) designating it as the individual property of the spouse. (e) As a recovery for damage to property under s , except as specifically provided otherwise in a decree or marital property agreement. (f) As a recovery for personal injury except for the amount of that recovery attributable to expenses paid or otherwise satisfied from marital property and except for the amount attributable to loss of income during marriage. (7p) Income attributable to all or specified property other than marital property, with respect to which a spouse has executed under s a statement unilaterally designating that income as his or her individual property, is individual property. (8) Except as provided otherwise in this chapter, the enactment of this chapter does not alter the classification and ownership rights of property acquired before the determination date or the classification and ownership rights of property acquired after the determination date in exchange for or with the proceeds of property acquired before the determination date. (9) Except as provided otherwise in this chapter and except to the extent that it would affect the spouse s ownership rights in the property existing before the determination date, during marriage the interest of a spouse in property owned immediately before the determination date is treated as if it were individual property. (10) Spouses may reclassify their property by gift, conveyance, as defined in s (4), signed by both spouses, marital property agreement, written consent under s (3) (e) or unilateral statement under s and, if the property is a security, as defined in s (11), by an instrument, signed by both spouses, which conveys an interest in the security. If a spouse gives property to the other spouse and intends at the time the gift is made that the property be the individual property of the donee spouse, the income from the property is the individual property of the donee spouse unless a contrary intent of the donor spouse regarding the classification of income is established. History: 1983 a. 186; 1985 a. 37; 1987 a. 393; 1991 a. 301; 1993 a NOTE: 1991 Wis. Act 301, which affected this section, contains extensive legislative council notes. Marital property presumptions and tracing principals are applied. In Matter of Estate of Lloyd, 170 Wis. 2d 240, 487 N.W.2d 644 (Ct. App. 1992). The marital property law does not reduce a non negligent mother s wrongful death recovery for the father s contributory negligence Chapter 7 Appendix - Page 2

15 CHAPTER 766 PROPERTY RIGHTS OF MARRIED PERSONS; MARITAL PROPERTY in their child s death. Smith v. State Farm Fire & Casualty Co. 192 Wis. 2d 322, 531 N.W.2d 376 (Ct. App. 1995). A quitclaim deed of a married couple s homestead from one spouse to the other is not valid to alienate the grantor s interest in the property in any way that would eliminate either spouse s contractual obligations under a mortgage containing a valid dragnet clause. Schmidt v. Waukesha State Bank, 204 Wis. 2d 426, 555 N.W.2d 655 (Ct.App. 1996), The termination under sub. (3) of a marital property interest in pension benefits did not prevent the application of the equitable principle that a murderer should not profit from the crime. The trial court acted properly in imposing a constructive trust on the decedent s marital property interest in the murderer s pension benefits. Estate of Hackl v. Hackl, 231 Wis. 2d 43, 605 N.W.2d 579 (Ct. App. 1999). Irreconcilable differences: Income from separate property under divorce law and under Wisconsin s marital property act. Bascom. 70 MLR 41 (1986). The effects of the Wisconsin marital property act on trusts: Whose property is it? Kusky, WBB March, Management and control of property of spouses. (1) A spouse acting alone may manage and control: (a) That spouse s property that is not marital property. (am) Except as provided in subs. (2) and (3), marital property held in that spouse s name alone or not held in the name of either spouse. (b) Marital property held in the names of both spouses in the alternative, including marital property held in a form designating the holder by the words (name of one spouse) or (name of other spouse). (d) A policy of insurance if that spouse is designated as the owner on the records of the policy issuer. (e) Any right of an employee under a deferred employment benefit plan that accrues as a result of that spouse s employment. (f) A claim for relief vested in that spouse by other law. (1m) (a) Notwithstanding any provision in this section except par. (b), for the purpose of obtaining an extension of credit for an obligation described under s (2) (b), a spouse acting alone may manage and control all of the marital property. (b) Unless the spouse acting alone may otherwise under this section manage and control the property, the right to manage and control marital property under this subsection does not include the right to manage and control marital property described in s (3) (a) to (d) or the right to assign, create a security interest in, mortgage or otherwise encumber marital property. (2) Spouses may manage and control marital property held in the names of both spouses other than in the alternative only if they act together. (3) The right to manage and control marital property transferred to a trust is determined by the terms of the trust. (4) The right to manage and control marital property permits gifts of that property, subject to remedies under this chapter. (5) The right to manage and control marital property does not determine the classification of property of the spouses and does not rebut the presumption under s (2). (6) The enactment of this chapter does not affect the right to manage and control any property of either or both spouses acquired before the determination date. (7) A court may appoint a conservator or guardian under ch. 880 to exercise a disabled spouse s right to manage and control marital property. (8) This section does not affect s (1) (f). (9) If an executory contract for the sale of property is entered into by a person having the right of management and control of the property, the rights of all persons then having or thereafter acquiring an interest in the property under this chapter are subject to the terms of the executory contract. This subsection applies to contracts entered into before or after the determination date. (10) At the death of a spouse if property described under s (3) (a), (b) or (d) is held by either spouse, but not in the names of both spouses, such property may be subject to the management and control of the holding spouse as provided under s History: 1983 a. 186; 1985 a. 37; 1987 a Optional forms of holding property; survivorship ownership. (1) Spouses may hold marital property in a form that designates the holders of it by the words (name of one spouse) or (name of other spouse) as marital property. (2) Spouses may hold marital property in a form that designates the holder of it by the words (name of one spouse) and (name of other spouse) as marital property. (3) A spouse may hold individual property in a form that designates the holder of it by the words (name of spouse) as individual property. (4) (a) Spouses may hold property in any other form permitted by law, including but not limited to a concurrent form or a form that provides survivorship ownership. Except as provided in par. (b) and except with respect to any remedy a spouse has under this chapter, whether a tenancy in common or joint tenancy was created before or after the determination date, to the extent the incidents of the tenancy in common or joint tenancy conflict with or differ from the incidents of property classification under this chapter, the incidents of the tenancy in common or of the joint tenancy, including the incident of survivorship, control. (b) 1. Except as provided in subd. 2. or in a marital property agreement under s : a. If a document of title, instrument of transfer or bill of sale expresses an intent to establish a joint tenancy exclusively between Chapter 7 Appendix - Page 3