Before you buy any property, make sure you understand what you’re getting into. Of course, for anyone that’s purchased a home, you know the mountain of paperwork to get through before the sale is final. However, this is all the more reason to pay close attention to the verbiage used on the realty’s conveyance document to avoid making costly mistakes. Some properties come with their own set of conditions which, if you are not careful, can lead to a substantial loss of your investment.
Here are some terms to look out for.
The Fee Tail
The language to look out for here is “To Recipient and the heirs of his body.”
Let’s say Frank, an owner of a rental property, wants to give part of that rental property to his friend Mike. However, he fears that Mike might one day sell this property to his competitor. So, to avoid this, Frank will give Mike a “Fee Tail” interest, which will prevent Mike from selling it to any other person except his descendants. If he does sell it to someone else who is not his descendant, the property will automatically go back to Frank or any of his descendants.
Most states made fee tail obsolete, arguing that it undermineS the marketability of a property. However, using the term “To Recipient and the heirs of his body” will render a fee simple absolute in some jurisdictions. Obviously, this can transform a profitable flip into a lifelong responsibility. So, make sure you confirm the phrasing to avoid any problems during property acquisition.
This is the highest form of property ownership in the US. It states that the owner of a property has full and irrevocable ownership of that land and anything on it. The owner is free to do whatever they wish on that land. And, if they die, the property will be passed on to whoever they choose to inherit it.
Fee simple also allows the owner of the property to lease it to someone else under certain conditions. For instance, they can make periodic payments and/or develop the property during the lease period. At the end of the lease, the land and anything on it will go back to the owner.
This commonly referred to as Fee Simple Defeasible.
With this type of ownership, the grantor will sell his property under some conditions.
For instance, let’s say that Frank wants his home to be preserved and turned into a private museum in the future. In that case, he will create a fee simple defeasible for his estate, stating that the property must be preserved or maintained at a certain level. After a certain number of years, it should be listed on historic registers. So, if the new buyer attempts to tear down the building, remodels it, or fails to enlist it to historic registers, their ownership of the property will automatically be undone.