Written by: Mylene Marcelo, Title Manager/Title Officer

We have a current vesting deed adding son into title dated 2017 as joint tenants with rights of survivorship. The Deed was executed by a Power of Attorney (POA) made by Wilma, Principal to Fred Jr., as Agent. The POA was dated 1997. Wilma was competent at the time the Power of Attorney was signed but the problem is, review of POA shows it does not allow self-dealing. By Fred signing on behalf of Wilma adding himself into title is deemed self-serving. He did not have the authority to transfer title to himself. The worse part of it is Wilma is now deceased. Now, does Fred Jr. obtain title as surviving joint tenant? How do we fix this?

Fred Jr. does not automatically obtain title as surviving joint tenant. The fact that the Deed creating joint tenancy was created by self-dealing would be deemed invalid. In this scenario, Wilma originally owned the property. When she died in 2010, she left a Will leaving her estate to her two children: Fred Jr. and Pebbles and said Will was admitted to probate. We requested for the probate documents to be pulled. We want to review the Petition, the copy of the Will, the Letters issued to the Personal Representative and the Order of Distribution and all other pertinent documents regarding the Estate. Apparently, Fred Jr. was the appointed Personal Representative of the Estate of Wilma. The solution would be to have a Deed executed by the Personal Representative and a Deed from Pebbles who is the other heir in order to perfect vesting into Fred Jr., who is the proposed borrower to be insured.

It is very important that the authority of an Attorney-in-fact is reviewed every time a Power of Attorney is being used in a transaction. This is just one of the documents that we review on a daily basis. It can be one that has already been recorded or one that is about to be used in our transaction. Either way, it is always best to submit the executed Power of Attorney for review and approval.

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At ARS we are occasionally asked by clients to recommend how multiple parties should take title to real property. Should it be as joint tenants, as tenants in common, as community property, or something else? We will inevitably decline to provide an opinion because, one, we are not a law firm, and two, we do not know the borrower’s family or financial situation and therefore are not in any position to make such a recommendation.

There are some situations, however, where we feel obligated to comment on the lender’s or borrowers’ proposed method of holding title because we know it will not have the effect desired by the parties.  The most prominent example occurs when one borrower holds title to property in a trust created by that borrower, and of which the borrower is both sole trustee and sole primary beneficiary, while the borrower’s spouse, also a borrower, has no interest in the property. In our experience lenders generally require both borrowing spouses to have an ownership interest in the property, but rather than amend the trust to add the spouse as a primary beneficiary, the borrowers request a deed adding that spouse to title, so that vesting would read:

Harry Husband, as Trustee of the Harry Husband Trust dated April 1, 2010, and Wendy Wife, as joint tenants with rights of survivorship.

Sounds pretty good, right? And it appears to meet the four required unities for the creation of a joint tenancy: each owner has an equal ownership percentage, in this case 50% each; the interests were created at the same time; all owners have an equal right to possess the land; and finally, each joint tenant has survivorship rights.

Ah, but it is that last unity – survivorship rights – that we need to look at more closely.  Under a survivorship scenario where Wendy Wife dies, the trust would own 100% of the property, so it could be said the trust has survivorship rights. But does it work the other way? No, it does not. A trust cannot be part of a joint tenancy because it is not a natural entity that can experience death.  Sure, the trustee can die, but a trustee is not the owner of the property, he or she is just the manager of the trust. When a trustee dies, the trust simply has provisions for successor trustees to continue management of the trust. If the settlor of the trust dies, the trust dictates to whom trust property is to be distributed.  In other words, for all intents and purposes Wendy Wife does not and cannot have a survivorship interest, no matter what the words in the deed say.  Therefore, the unity of survivorship interests requirement needed to create a joint tenancy has not been met.

So, what happens when the joint tenancy vesting fails?  It reverts to a tenancy in common, and in our case that means Wendy Wife’s ½ interest will not be absorbed by the trust on her death but will need processed through probate.  That is clearly not what the borrowers want, as evidenced by the way they attempted to hold title.  As an alternative, they might want to amend the Harry Husband Trust to add Wendy Wife as a beneficiary, or they may want to put a ½ interest into a trust created specifically for Wendy Wife.

Either way, ARS recommends they consult their attorney to craft a solution that meets both their estate planning needs and the lender’s requirements.