Fanger & Associates LLC, An Ohio Law Firm
The law of property is a large and complex area of the law. It deals with the land itself and also with fixtures on land, movable property not associated with land, and rights and other intangible interests capable of ownership. The following material outlines some of the more important aspects of the law of real property. Some aspects of the law of personal property are incidentally dealt with below and in Part VI, "Contracts," and Part VII, "Business Transactions."
Kinds of Property
The word "property" can have a variety of meanings. In a strict legal sense, it signifies ownership. As a practical matter, it refers to things capable of ownership. The two main classifications of property are real property and personal property.
The terms real property, real estate, and realty all refer to land, to buildings and other fixtures on land, to different kinds of interests in land, and to various rights which go along with land or some interest in it. Land includes not only the surface of the ground, but everything under and over it. In older theory, ownership of a parcel of land begins at the center of the earth and extends through the boundaries of the parcel out into space. Under modern thought, airspace above the parcel is not exclusive. In general, airspace is considered in the public domain and subject to rights of navigation. Broadly speaking, a "fixture" is something which is not naturally a part of the land, but has been affixed to the land in such a way that it cannot readily be removed without damage. Buildings are usually fixtures on land, and thus real property. If they are readily portable, however, they may not be considered part of the land. Crops and other growing things are part of the land while growing, but become personal property when they are picked or harvested. Minerals have similar attributes in that they are part of the land in their natural state, but become personal property when mined, quarried, pumped, or otherwise removed. Fixtures, crops, and minerals are sometimes referred to as "mixed property," because they have some characteristics of both real and personal property. There are many degrees of ownership of land, ranging from full ownership down to permission from the owner to use a portion of the land for specific purposes. All of these degrees of ownership may be called "interests in land." (The term "interest in land" is usually used to describe degrees of ownership which are less than complete ownership.) Certain types of ownership carry particular rights, such as the right of a landowner to receive any rent the land might yield.
Broadly speaking, personal property is anything that is not real property. The key characteristic of personal property is its movability. In general, personal property may be moved with or by its owner or possessor. Personal property can be tangible or intangible. Tangible personal property is property that can be moved and which has physical existence. It can be seen and touched. Examples include cars, trucks, clothes, furniture, refrigerators, tools, and cash. Intangible personal property includes various rights or interests which are not capable of being touched or seen. Examples include ownership of stocks and bonds, ownership of a debt, and the right to bring a legal action. Many of these rights or interests are represented by something tangible, such as a stock certificate or a bond. The certificate merely represents the value of the underlying interest; it is not the underlying interest. For example, a stock certificate represents an amount and kind of ownership interest in a particular corporation. Personal property includes assets in a bank account, interest in a joint bank account, or a payable on death account. A joint and survivorship bank account is an account in the names of two or more persons who have an equal right to the assets in the account and the right of survivorship. The payable on death account ("POD") is an account payable on request to one person during his or her lifetime and upon his or her death to one or more named persons. Because of its different nature, personal property is subject to entirely different rules than real property. Moreover, because there is such wide variation in types of personal property, there are many different sets of rules dealing with its ownership and use.
Types of Real Property Ownership
When we say that a person "owns" real estate, we usually mean that she is the full owner. Full ownership is only one of the ways to own real property. Actually, there are many different ways to own real estate. Lesser degrees of ownership include life estates, and a right of possession for years, or even months or weeks. Ownership may be shared in various ways. Property may act as security for debt, and the security interest is a kind of ownership. A person may own an interest in real property merely by having the owner's permission to use it in a certain way. Many different kinds of interests can be separated from the full ownership and be owned or disposed of separately. For example, the mineral rights of a piece of property can be sold and the original owner can continue to live on her land.
Full ownership of real property is called "fee simple ownership," "fee simple title," or sometimes just "ownership in fee." The characteristic which distinguishes fee simple title from lesser grades of ownership is the right to pass full ownership to someone else, whether during the original owner's lifetime or upon her death. Among other important rights included in fee simple ownership are the right to: (1) use the real property as she sees fit; (2) take the rents, products, or profits the property yields; (3) mortgage the property; (4) limit the use of the property; (5) allow others to use the property; and (6) sell the property. Fee simple ownership of real property is sometimes described as "absolute ownership." This description is misleading because there are substantial limits on how a fee simple owner may use the land (real property). For example, the fee simple owner must: pay taxes on the land; abide by zoning and other restrictions on the use of the land; honor the rights of others who own an interest in the land (co-owners, tenants, lessees, mortgagees, holders of easements, etc.). Further, the fee simple owner must use the land in such a way that the use does not interfere with the rights of other landowners and the public.
It is possible for a fee simple owner to grant ownership of her property to another person for the duration of that other person's life. This type of ownership is called a life estate. The person who holds the life estate is called a life tenant. (The term "tenant" may be confusing. As used in this context, "tenant" does not refer to a rental arrangement but to a kind of ownership in real property.) With certain important exceptions, a life tenant can treat the property in much the same way a fee simple owner can treat her property. For example, a life tenant is entitled to the rents or profits the property yields, and access to the property. Because the life tenant's interest is by definition terminated by death, the life tenant cannot dictate how the property will be distributed upon the life tenant's death. The life tenant cannot sell a fee simple interest in the property. Further, the life tenant cannot destroy or waste the property because such action affects the rights of those who will own the property after him. When a life estate is created, a remainder interest is also created. The person who holds the remainder interest (the remainderman) automatically acquires fee simple title to the property when the life tenant dies. The terms of the original grant determine who holds the remainder interest. Usually, the owner will name the remainderman when he creates a life estate. If he does not name the remainderman, then, upon the death of the life tenant, fee simple ownership reverts to the original owner or his heirs.
Two or more persons can be the owners of the same property. In Ohio, there are two different forms of ownership of real property where two or more persons can own the property: tenancy in common, and a survivorship tenancy. (Ownership of a condominium is a combination of individual and multiple ownership.) In Ohio, the usual type of multiple ownership of property is tenancy in common, in which each owner has an undivided, fractional share of the property. Depending on how the tenancy in common is created and the transactions which subsequently take place, the shares may be equal or unequal. Regardless of the size of his share, each tenant in common enjoys full ownership of his share, and can sell, mortgage, use, or dispose of it as a full owner. If one tenant wishes to take his share (in the sense of taking control of his part of the property or to obtain the monetary value of his part), he may file a lawsuit to partition the property. If partition is ordered, the property may be physically divided and a portion given in fee simple to each tenant in common, or the property may be sold as a unit and the proceeds divided among the tenants in common in proportion to their respective shares. In Ohio, a survivorship tenancy, formerly known as a joint tenancy with right of survivorship, is a kind of ownership created by statute. A survivorship tenancy is similar to tenancy in common, except that joint tenants have a right of survivorship. That is, when a joint tenant dies still owning her share, the surviving tenants divide that share among them. The right of survivorship may be defeated where, for example, all joint tenants "convey" (sell) their interest, or the joint tenants are husband and wife and their marriage is terminated by divorce or dissolution. In most states, the right of survivorship is automatically created when a joint tenancy is created. In Ohio, however, the right of survivorship must be specifically created along with the joint tenancy. The statute allowing joint tenancy with right of survivorship states that it should be liberally interpreted to comply with the intent of the owners. However, the instrument (legal document) that creates the joint tenancy must have some understandable provision which creates survivorship. If the instrument does not have such a provision, the result will probably be tenancy in common; a survivorship interest will not be recognized. It should be noted that joint and survivor ownership is commonly used for personal property as well as real property-a joint bank account, for example, normally is joint and survivor property. Ohio allowed "tenancy by the entireties" by statute from 1972 to 1984. Tenancy by the entireties is essentially a joint tenancy created by a husband and wife. Each owns the entire property. As with joint tenancy, survivorship is the predominant feature. Tenancy of the entireties can no longer be created in Ohio. However, those interests which were created under the statute are valid. Condominium ownership is a hybrid of individual and multiple ownership. When a person is a condominium owner, he normally owns a portion of the property involved outright, and a portion as a tenant in common. For example, in a condominium, each resident might own his own apartment (unit) in fee simple and be a tenant in common with other apartment owners as to halls, stairways, pools, walks, and other common areas, including the ground on which the building stands.
An owner may give temporary possession and use of her property to another in return for the payment of rent or something else of value. If the owner does this by means of a written agreement called a lease, the party to whom possession of the property is given acquires a leasehold interest or leasehold estate. In such a case, the landowner is called the lessor and the person to whom the property is rented is called the lessee or tenant. The term, or time, of the lease may be weeks, months, or years. Most leases of residential property are for one year, whereas leases on business property are often for five, 10, or 20 years or longer. A lease may provide one or more options of renewal. A lessee may assign or sell her leasehold interest to another, provided the lease agreement does not restrict this right. Commonly, leases prohibit assignment by the lessee without the lessor's consent. If the lessor sells fee simple title of the property during the term of a lease, the new owner acquires title subject to the leasehold interest. Generally, if the lessee does not move off or out of the property at the end of the term, the lease is automatically renewed for a similar term, or at least for a one-year term. Sometimes the lease will specify a tenant's holdover (failure to move off or out of the property) is not an automatic renewal beyond the term but a tenancy from month-to-month or a tenancy at will.
A rental arrangement which does not involve a lease may be either a tenancy by the month or a tenancy at the pleasure of the parties. When residential property is rented without a lease, it is usually on a month-to-month basis. The tenant is entitled to possession for one month at a time, and if he holds the premises over into the following month, then his tenancy is automatically renewed for that month. One month's notice by either the landlord or tenant is necessary to terminate a tenancy from month-to-month, and one week's notice is necessary to terminate a tenancy from week-to-week. Transient accommodations, such as furnished rooms, are often rented by the day, and rental arrangements of this sort can usually be terminated by either party without advance notice, that is, terminated at will.
A "lien" is a charge or encumbrance on property to secure the payment of a debt or the performance of some act. The most common form of lien is created when a person gives a mortgage on her property to another to secure repayment of a loan. There are many other types of liens. A tax lien attaches to property at the beginning of each taxable year, even though the actual amount of the property taxes has not been determined and the taxes are not yet due. A judgment lien attaches to the property of a person against whom a money judgment in a lawsuit is rendered to secure the payment of the judgment. (A judgment lien is a method of securing payment of the judgment.) When a person is arrested, one way in which he can make bail is to place a lien on his property in favor of the state. When a workman helps build or repair a house or other building, or when a supplier furnishes materials for the job, each has a lien to secure payment for the labor or materials furnished. This is called a mechanic's lien (the supplier's lien is sometimes called a materialman's lien). The procedure for enforcing a lien, regardless of its type, is called foreclosure. For example, if a person defaults on paying the loan secured by a mortgage, the mortgagee may file a lawsuit to obtain a money judgment on the loan, foreclose the mortgage, sell the property under court supervision, and have the proceeds applied to pay the money judgment. Frequently, property will be subject to many liens. In such cases it is desirable to avoid a series of foreclosures and forced sales. Accordingly, when one lienholder sues to foreclose, all lienholders are notified and their claims dealt with in the same suit. This process is called "marshaling of liens." Where there are many liens, the property may not be worth enough to cover all liens, and it is necessary to determine the priority of liens. The general rule is that the first lien in time is the first lien in priority. Thus, when the property is sold, the first lienholder will be paid. If enough money is left, the second lienholder will be paid, and so on in order of priority. Some liens, for example tax liens, have statutory priority.
Sometimes a landowner will grant another person permission to use a portion of her property for a specific purpose. Such permission may be either an "easement" or a "license." An easement is formal permission, granted in writing by deed or similar document, to use another's property. An easement "runs with the land," that is, it remains valid even though the property involved is rented, mortgaged, sold, or transferred through a succession of owners. Normally, the terms of an easement provide for its automatic cancellation when it is no longer used for the specific purpose for which it was granted. Easements are commonly granted to utility companies to install and maintain water, sewer, gas, electric, telephone, and cable television lines across private property. Sometimes an owner whose property has no ingress or egress will acquire an access easement across adjoining property. A license is informal permission to use another's property. It may be in writing, but is more often oral and may be implied from the conduct of the parties. Licenses do not run with the land, so that the holder of a license cannot sell or otherwise dispose of it. Also, licenses can be terminated by the property owner at any time. A typical example of a license would be oral permission to use a path across an owner's property. Because an easement is a genuine interest in property but license is not, a land dispute may often turn on the question of whether some express or implied permission to use another's property was an easement or a mere license. If the court decides the permission is an easement, the permission is an enforceable property right.
Among important real property interests capable of separate ownership are rights to explore for and develop minerals or to harvest timber. These activities require substantial capital. Thus, landowners often lease mineral or lumbering rights to professionals. An owner might lease the mineral rights to her property to an oil exploration company in return for a flat payment when the lease is signed, plus a royalty of, for example, one-eighth of the value of any oil or natural gas brought to the surface. Leases to mine coal or quarry stone, sand, or gravel usually involve fixed rent rather than royalties. Timber leases often are granted for a single, flat payment. When mineral rights are severed from the ownership in chief, it is quite common for ownership of the land, ownership of the mineral rights, and ownership of the right to develop the minerals, to proceed through separate generations of owners over a long period of time. For example, many old oil and gas wells in Ohio are still producing. Royalties from these wells are being paid by sixth-generation oil companies to sixth-generation owners of the mineral rights under leases first signed in the 1860s or 1870s. These old agreements still affect land now occupied by sixth-generation landowners.
How Real Property Ownership is Transferred
There are many ways in which one can acquire an interest in real property. Perhaps the most important way is by means of a written document such as a deed, lease, or mortgage. Another important way is through inheritance. A third method is by operation of law, such as a transfer resulting from abandonment by the owner or a transfer ordered by a court following a lawsuit. Sometimes a person can acquire ownership by adverse possession or prescription, that is, through "squatter's rights." Historically, land has been considered a main source of wealth and necessary to a healthy economy. Real property law has reflected this historical view. One of the fundamental principles of real property law is that ownership of land should not be concentrated in the hands of a few or tied up for generations. Consequently, the law discourages certain attempts to restrict transfers of ownership.
Most interests in lands are granted through the use of deeds. A leasehold estate is granted by means of a lease. A mortgage is an interest in land where the land is pledged to secure or guarantee payment. It is created by a document called a "mortgage deed" or simply a mortgage. The transfer of an interest in real property is call "conveyance." Further, the basic documents, the lease or mortgage deed, are contracts, or parts of a contract, as well as conveyances of a particular interest in real property. The higher degrees of ownership in land are almost always granted by means of a deed or similar document which: (1) names the person making the grant (the grantor) and the person to whom the grant is being made (the grantee); (2) describes the property or interest being granted; (3) is signed by the grantor; and (4) is acknowledged by him as his "free act and deed." A warranty deed contains a guarantee by the grantor that he has good title to convey, and will defend it against all claims. If the grantee's title is successfully challenged at a later date, the grantee has a cause of action against the grantor based on grantor's guarantee. Besides the grantor's warranty, the distinguishing words in a warranty deed are found in the granting clause, which states that grantor "does hereby grant, bargain, sell, and convey...." Warranty deeds are used to convey fee simple title. A quitclaim deed is similar to a warranty deed, except that it contains no guarantee of good title, and the key words in the granting clause are, "remise, release, and forever quitclaim...." The effect of a quitclaim deed is to convey the grantor's interest in the property (if he has any), without guaranteeing that he has any interest to convey. ("Remise" means to surrender or give back.) Quitclaim deeds are often used to adjust boundaries, correct errors in previous deeds, and to obtain releases in land disputes. A lease is used to convey a leasehold estate, and is both a contract and a conveyance of land. A lease names the property owner (the landlord or lessor) and the person to whom the property is being rented (the tenant or lessee), and describes the premises involved. It states the term or period of the lease, and the amount and method of payment of the rent. The lessor usually promises to protect the lessee's possession and "quiet enjoyment" of the leasehold. The lessee promises to pay the rent as agreed, use the premises for proper purposes, protect the property from undue harm, and return it when the lease expires. The terms of a lease frequently cover a variety of other matters, such as renewal, holdover, and assignment. A mortgage is similar to a deed, except that the grant of ownership to the mortgagee is conditional rather than absolute. In addition to the language usually found in a deed, a mortgage deed recites the debt on which it is based and the terms for the repayment of the debt. Further, a mortgage states that if the mortgagor pays as agreed, the grant of ownership to the mortgagee is "null and void" (canceled); but if the debt is not paid when required, the grant to the mortgagee-the lender-becomes absolute. Finally, the mortgage may require the mortgagor to do various things necessary to protect the mortgagee's security, such as paying the taxes when due and keeping the fire insurance up to date.
When a person dies owning or holding some interest in real property, her interest must be transferred to someone else. The persons who acquire the property may be heirs named by her will, or the persons entitled by law to the property when there is no will. Also, persons may acquire a decedent's property because they own the remainder interest to a life estate, or because of a right of survivorship. One of the features which distinguishes real property from personal property is the automatic vesting of rights in real property caused by death. Where a person has a right of inheritance or survivorship in real property, her interest vests by law upon the death of the person through whom she would take. Title to personal property, on the other hand, does not automatically vest in the heirs. It should be noted that although the title to real property passes immediately upon death, real property and interests in real property are not exempt from the administration of estates-administration is necessary to insure that the deceased's debts and taxes are paid and that the title to the property properly transferred on the public records. See Part IX, "Probate Law," for a more complete discussion of inheritance and estates.
Ownership in real property may be transferred without a formal conveyance. Such a transfer may occur as the result of a judgment in a lawsuit. For example, a divorce decree, or the court order in a dissolution of marriage which approves a separation agreement, may award the family home to the wife (or husband), and the decree, or order, may have an effect similar to a deed. Another method for transferring ownership of land is "accretion," where, for example, the natural flow of a stream erodes soil from one person's land and deposits it on another's property.
Sometimes the title to real property or an interest in real property is transferred because the original owner neglects his rights. For example, a person may acquire title to another's real property by "adverse possession." Adverse possession is simply taking possession and keeping possession continuously for 21 years, provided that the possession is perfectly obvious and that the landowner does nothing significant to assert her rights as owner. Sometimes entire tracts of land are acquired by adverse possession, although the usual case involves a small portion of someone's property which an adjoining owner fences off and uses for 21 years. Similarly, rights to use real property, notably easements, may be acquired by prescription, that is, by actual use coupled with the landowner's failure to prevent the use. A typical example of a prescriptive right is a right-of-way acquired over another's property by using the property for road or driveway purposes for a substantial period of time without complaint by the owner. A large office building in an Ohio city contains a street-level arcade regularly used by pedestrians as a walkway between streets. Once a year, on New Year's Day, the management places chains across the entrances to assert its ownership and thus prevents the arcade from becoming a public right-of-way by prescription.
Land is one of the chief sources of the nation's wealth, and its proper development and use is essential to a healthy economy. Feudal land laws allowed the concentration and retention of land (and thus wealth and power) in the hands of a few families. This concentration tended to stifle economic growth. Society developed a policy that land should be freely transferable. The law gradually developed legal rules which implemented this policy. Adverse possession is a logical outgrowth of this policy. It implements the policy of free transferability of land by punishing mismanagement. The elimination of "fee tail" estates is another rule which implements the basic policy of free transferability. In Ohio, a real property owner cannot permanently restrict its future ownership to direct blood descendants (a type of feudal land tenure called "fee tail"). In Ohio, any attempt to pass land in fee tail would result in the first recipient of the property (called the "first donee in tail") receiving a life estate and her heirs receiving the remainder in fee simple. Similarly, the law generally holds restraints on alienation void, that is, it does not usually permit grantors to prohibit future owners from selling, leasing, mortgaging, or otherwise disposing of the property as the future owners see fit. The rule against perpetuities is another rule which encourages transfer of property. It limits the period of time a property owner can hold up a change of ownership in the future. This rule states that any grant of interest in real property to take effect in the future must take effect, if at all, within the period of the life or lives of beneficiaries living at the time of the grant, plus 21 years. The rule against perpetuities is discussed in Part IX, at "Limitations On Wills; Special Provisions."
Ownership of real property must be documented in such a way that everyone has an opportunity to determine the identity of the owner of record. Public land records put everyone on notice of the identity of the owner of record. Under the law, if a person's ownership interest is not made a matter of public record, that person may not be able to assert her title-especially against innocent purchasers. Every state maintains public records of land, and of transactions and events affecting the ownership of land. In general, each county keeps records for the land within its geographical borders. A careful search of these records will reveal the status of the record title or ownership of any given parcel of land. Please note that the actual ownership may differ from the record title.
The apparent possession of land (for example, living or a residence upon the land) is a poor indication of ownership. The actual owner may live on the land, or may live one house or one continent away from the land in question. Further, the actual owner of the land may be an international corporation with headquarters in the Far East. Consequently, some system of land records is necessary to keep track of land titles and interests. The chief value of land records is that they give everyone notice of the existence and nature of interests in, and claims on, real property. The burden of filing documents evidencing an interest in real property is on the person claiming the interest. Failure to file does not, in itself, destroy the interest involved, but it may prevent the person holding the interest from asserting that interest against innocent third persons. A holder of an interest in real property may assert her interest against the person from whom she acquired it. (In general, the person involved in the transaction as the seller or transferor is not in a position to argue that he did not know about the transaction.) However, where the holder of the interest has not recorded her interest, she may not be able to assert a valid claim against a third person who acquired the subject property without notice of the holder's claim. The reasoning behind this result is direct. The holder's claim, while valid, was not placed on the public records. The third person acquired the real property innocently and in reliance on the public records. Suppose a landowner mortgages his property as security for a loan, but the lender neglects to file the mortgage deed in the county records. Later, the owner sells the property to a third person who has no knowledge of the mortgage. The mortgagee (lender) is now powerless to foreclose its mortgage on the real estate, because its claimed lien on the property was not made a matter of public record. The property which secured the mortgage has been transferred to an innocent third party. If the mortgage had been filed, it could have been foreclosed. The buyer would have been charged with notice of the existence of the mortgage, even if the buyer neglected to examine the records and thus had no actual notice.
In Ohio, the basic land records are kept by the county recorder. For example, the recorder's office has records of mechanic's liens, property bonds posted for bail, deeds, mortgages, and indexes for these records. The most important are the records of deeds and mortgages, and the general index to these records. Mortgages and deeds filed for record are copied in every detail, and the copy bound into a book. Originally, copies were made by hand. Now the copies are made and accessed through the use of contemporary technology. When a deed or mortgage is recorded and placed in its proper book, the volume and page where it appears is noted in the general index. The simplest form of index is arranged alphabetically by grantors, with a reverse index for grantees. Another important set of land records, kept in some counties, is the "land registry." The land registry is part of an entirely different and separate system of recording. Land registration requires a court proceeding to establish the status of the title. Once the status of the title is determined, a certificate of registration is filed and all subsequent transactions and claims are noted on the certificate. The system is called the "Torrens" system, and registered land is often described as "Torrenized" land. A recent law allows each county to decide whether or not to keep a "Torrens" system. The county recorder's office is also the repository for plats and surveys. A plat is a map of subdivided land which shows the various lots, the portions of the land dedicated for roads or other public uses, the easements for utilities, and other features. Surveys are exact descriptions of land parcels, derived from actual observation and measurement by means of instruments such as a compass, transit, theodolite, surveyor's chain, etc. Other county officials also keep important land records. The county auditor and county treasurer are responsible, among other things, for keeping track of property taxes. (Taxes are mentioned here because they are a lien, or charge, on real property). The auditor's tax maps are a convenient method for identifying property and are often the starting point for a title search. The clerk of the common pleas court keeps the records of that court. The records kept by the clerk must be searched because lawsuits and judgments can affect the title to property. Similarly, probate court records are also extremely important in determining the status of property ownership. The county sheriff also keeps a record of foreign judgments filed in the county (a foreign judgment is one rendered in a court in another state).
The usefulness of a public land record often depends on the accuracy with which a specific property or parcel is described in the record. There are several ways to describe a parcel of real property, but the most common method includes some sort of map reference to locate the parcel in the county, plus a series of bearings and distances (called "metes and bounds") describing the exact boundaries of the parcel. If property is subdivided and platted, a parcel can be accurately described simply by giving the subdivision name and lot number.
The many different kinds of interests in real property, and the complexity of land records, makes it obvious that searching land records and determining the status of land titles is a job for professionals. Any person interested in a piece of property, and thus the title to such property, should contact an attorney. A typical title examination is a backward search of the records, that is, the person doing the search begins with the present owner and traces the title back through each preceding owner. The basic object is to establish the "chain of title." The present owner's claim is good if his title can be shown to be part of an unbroken chain of ownership. In a complete title examination, the chain of title may be taken back to the original source. The original source will vary depending on the location of the property in Ohio. The original sources of Ohio property usually are one of the original land grants from Congress or from various state legislatures (especially Virginia and Connecticut). A complete title examination is tedious and can be quite difficult. Many early records have been destroyed-nearly every courthouse in Ohio has been damaged or destroyed by fire at least once. Further, the accuracy of older records is often suspect. Early surveys were frequently done with crude instruments in a harsh and hostile environment by men who could barely read and write. Old land descriptions can be irritatingly vague. They can read, for example, "Beginning at a clump of black locust located at the northeast corner of the Peter Schweitzer farm, then northeasterly 250 rods, more or less, to a large flat rock on the southerly bank of Moccasin Creek." There are numerous potential difficulties. For example: the surveyor's compass was inaccurate; the locust trees died of natural causes or were cut for fence posts; the record of Peter Schweitzer's farm was possibly destroyed in the courthouse fire of 1831; and the large flat rock could have been washed away in the 1913 flood when Moccasin Creek cut a new bed, etc. In Ohio, complete title examinations are usually unnecessary. Rules for marketable title are specified by statute. Standards for searching title have been established by the courts, title insurance companies, lenders, and the Ohio State Bar Association. Under the statute, if a title search shows that there is an unbroken chain of recorded title which goes back 40 years, there is proof of "fee title" and it can be assumed that the current owner has fee title, that is, the right to pass title. This right to pass title is rooted in the first title recorded 40 years prior to the search, called the "root of title." It must be noted that a title search must often go beyond the root of title. For example, a 99-year lease, or easement, which was effective in 1950 would be beyond 40 years of a search conducted in 1993, but could still affect the title to the property. In such a situation, fee title could be passed, but the title might be subject to the lease or easement made in 1950 which would not be found if the search was limited to 40 years.
Purchase and Sale of Real Estate
The most common type of real estate transaction is the purchase or sale of a home. This section outlines some of the matters to be considered in purchasing or selling a home.
Usually, a contract for the purchase and sale of residential property will be on a standard form used by all real estate brokers in a particular area. The contract is in the form of an offer by the prospective buyer, with a space for acceptance by the seller. Frequently, offers are limited in time, that is, there is automatic cancellation if the offer is not accepted by a specified time. The offer: (1) identifies the premises, usually by street address; (2) states the proposed terms of the purchase, such as amount of down payment, type of financing, and maximum interest rate; (3) specifies the type of evidence or proof of title (certificate of title, abstract of title, or title insurance) to be furnished by the seller; (4) provides for payment of unpaid taxes and assessments (usually these will be pro-rated between buyer and seller, based on the amount of taxes accrued but not yet payable at the time of completing the sale); (5) lists the various kinds of personal property to be included in the transaction, such as rugs, drapes, dishwasher, and other items; and (6) states other terms and conditions. (As used above, "premises" means land plus the buildings upon the land. It can also mean a particular part of a building.) The parties are bound by the contract when it is accepted by the seller. If the buyer defaults, the seller may hold the buyer liable for the difference between the contract price and the price at which the seller is eventually able to sell the property (if lower than the original contract price). If the seller defaults, the buyer may compel the seller to specifically perform the contract, or may sue for damages only. In either of the above examples, liability can have serious consequences. A buyer should not sign an offer until he has read all of it and understands the terms. Similarly, a seller should not accept a contract (the offer to purchase) until he has read all of it and understands the terms. If either party has any questions, that party should contact an attorney before signing anything. Finally, a buyer should understand her relationship with the real estate agent, the broker, and the seller. Generally, the agent works for the seller. (The buyer's agent shares in the commission that results from a sale.) Buyers should ask the agent to provide an agency disclosure statement (a statement that explains the agent's legal relationships to the seller, the broker, the buyer, etc.) when they begin their relationship with an agent.
Few people have enough cash to purchase a home outright, and some form of financing will be necessary. The usual ways for financing are a conventional mortgage, an FHA or VA mortgage, a mortgage assumption, or a land contract. An important question each buyer must ask is, "Can I afford to buy this house?" No matter how carefully a family budgets its income and expenditures there are limits on how much housing debt a family can afford. Other expenses, such as food, medical and automobile insurance, etc., must also be paid. One rule of thumb (but not the only one) is to limit monthly housing expense to one week's take-home pay. Housing expense includes the mortgage payments (principal and interest), plus fire or homeowner's insurance premiums, plus property taxes. For example, suppose the monthly payment on a proposed mortgage is $300, the homeowner's insurance costs are $192 per year or $16 per month, and the property taxes are $720 per year or $60 per month. Thus, the monthly housing expense is $376 ($300+$16+$60). In order to handle this expense comfortably, the buyer should have a weekly take-home pay of at least that amount and, preferably, more. Mortgage money may be obtained from various types of financial institutions, including savings and loan companies, banks, mortgage bankers, and mortgage brokers. Many of the larger insurance companies (which must keep their funds invested in a high percentage of first mortgages) have mortgage departments, and many acquire their mortgages through mortgage bankers and brokers. Some kinds of mortgages are insured by the federal government, through agencies like the Federal Housing Administration (FHA) or the Veterans Administration (VA). Other mortgages are called "conventional" mortgages. Usually, a purchase on an FHA or VA mortgage will require a smaller down payment than purchase on a conventional mortgage, although the total purchase price in an FHA or VA transaction may be higher because of the increased risk involved in a high-ratio loan (a loan where the amount of the loan is high in relation to the value of the property). Sometimes, when mortgage money is especially hard to find or interest rates are very high, a seller may sell his home on the condition that the buyer assume and pay the seller's existing mortgage. This arrangement is called a mortgage assumption. A mortgage assumption is advantageous because the buyer can take over the seller's mortgage and the interest rate of that mortgage. However, it may require a high down payment. Further, the seller's mortgage must allow assumption. Finally, the seller must remember that he generally remains liable on the mortgage. Thus, the seller must choose a buyer who can and will keep the payments current. A seller can also take a mortgage back, that is, he, rather than a bank or other financial institution, can underwrite the purchase. However, it is more common for a seller to sell the property on an installment land contract because, under this kind of a contract, he is not bound to convey title to the property until the full purchase price is paid.
If a home purchase is to be financed through a bank or other financial institution, the lender will require a title examination. If the lender does not require it, or if there is no institutional lender, the buyer should contact an attorney to have the title examined. The seller's promise to furnish good title is not a guarantee that the seller actually can, or will, furnish such title. The purchase contract normally requires that evidence of title be furnished in one of three ways. One way is to have an attorney give a certificate stating the title is good. (The certificate may often list a series of exceptions-issues or areas the lawyer has not researched or cannot research.) Another way is to obtain an abstract of title, which is a chronological summary of all transactions concerning the property found on the public records. A third method (the one most commonly used today) is to purchase title insurance. Normally, title insurance is payable only to the mortgagee (lender) in the event title to the property is successfully challenged. The buyer can obtain an owner's title insurance policy by paying an additional premium. In general, the method used to evidence good title depends on local custom and the requirements of the lender.
When title has been examined, and everything is ready for the transaction to be completed, the contract will be "closed." When the contract is closed, all necessary documents are signed; payments are made; the property is conveyed to the buyer by the seller's delivery of the deed and, ultimately, the deed is filed with the recorder. There are two kinds of closings, "round table" and "escrow." A round table closing is an actual meeting where the buyer, seller, lender, and their representatives meet, make payments and adjustments, and actually sign and exchange the various documents. The deed is recorded after a round table closing. An escrow closing is not an actual meeting. All the necessary documents, payments, and adjustments are made in a series of transactions. The purpose of both kinds of closings is the same. The type of closing that is used depends on local custom and the needs of the individual transaction. During a closing, the balance of the purchase price is paid and the deed signed and given to the buyer. Various deductions and adjustments are made in the amount paid the seller. The buyer and seller receive a closing statement. The statement lists the purchase price of the property and all adjustments to that price. The statement includes specific entries for all of the following items: (1) the amount of the buyer's down payment, including any earnest money deposits; (2) the amount of cash, if any, that is to be paid to the seller; (3) the amount required to pay off seller's existing mortgage; (4) the amount of the transfer tax for which the seller is responsible; (5) the cost of the title examination and the cost of the title insurance policy (the buyer is usually responsible for these costs); (6) the pro-ration of real estate taxes between the buyer and seller; (7) the cost of document preparation and recording (the buyer is usually responsible for most of these costs, but the seller is usually required to pay for the release of the existing mortgage and for the preparation and recording of the documents necessary to cure defects in title); (8) the amount and cost of the insurance and tax escrows that lender may require of the buyer; (9) the amount of the real estate commission (the seller is usually responsible for the commission). As stated above, the buyer also executes (signs) the mortgage to the lender. The buyer should make certain that the contract of sale is fully complied with before signing the mortgage. The contract of sale becomes "merged" in the deed when the deed is accepted, and the right to enforce an unperformed item in the contract may be lost. Also, the buyer is theoretically entitled to possession of the property immediately upon closing, but it is common for the contract to provide for delayed possession (30 to 60 days after closing is usual). If there is to be some difficulty over possession, the buyer and seller should resolve the question before the closing. Beginning in July 1993, certain transferors of real estate, including sellers of homes, must provide a disclosure form which summarizes the transferor's knowledge of the property. Sellers are required to summarize their knowledge of: (1) the condition of the water supply, the sewage system, the walls, and the foundation; (2) the presence of hazardous substances, such as lead-based paint, asbestos, and radon gas; and (3) any other material defects. In certain situations where these defects have not been disclosed, the buyer may rescind the contract without any liability. This law does not apply to a number of common transfers or sales. For example, it does not apply to: sales of new homes which have never been inhabited; sales to persons who have inhabited the property for one year or more; or, in general, to transfers made pursuant to court order. A 1997 federal law also requires sellers to advise buyers if a home was built before 1978, and allow an inspection for lead-based paints.
Landlord and Tenant
The common law respecting leaseholds and tenancies has been modified by statute in Ohio. This section reviews particular aspects of the rights, obligations, and remedies of landlords and tenants.
In essence, the landlord's obligations to tenants are: (1) to keep the rented or leased property (premises) decently habitable; and (2) not unreasonably interfere with the tenant's privacy. The landlord must ensure that common areas (parking lots, stairs, halls, sidewalks, etc.) are clean and safe, and that the structure complies with building and housing codes. Specifically, electrical, plumbing, heating, and ventilating equipment must be maintained. The landlord must also provide water and heat, unless these utilities are under the tenant's control. If the building contains four or more dwelling units, the landlord must provide trash containers and trash removal. Finally, the landlord cannot insist on having unreasonable access to the rental premises, and must give reasonable advance notice of the intention to enter the tenant's suite, apartment, or area.
The tenant's basic obligations are to: (1) use and maintain the premises in a proper manner; (2) not disturb the neighbors; and (3) timely make the rent or lease payments. The following is a more specific list of duties. The tenant must: keep the premises clean and safe; dispose of trash; keep plumbing fixtures as clean as conditions allow; use electrical and plumbing equipment properly; maintain appliances (if the rental agreement so provides); comply with housing, health, and safety codes; and allow the landlord reasonable access to the premises. (The tenant must, for example, allow the landlord reasonable access so the landlord can: show the premises to prospective tenants; inspect or repair the premises; or deliver materials or articles to the premises for repair or renovation.) In addition, the tenant's family and guests must not damage the premises or disturb the neighbors.
Landlords often require new tenants to make a security deposit (commonly equal to one month's rent). The purpose of the deposit is to cover unpaid rent and any damage to the rental property caused by the tenant. If the deposit is more than $50 or one month's rent (whichever is greater), and the tenant is in possession for six months or more, the landlord is required to credit the deposit with five percent interest. Within 30 days after a tenancy is ended, the landlord must itemize every deduction from the security deposit and give the tenant written notice. Where the tenant has furnished the landlord with a forwarding address, the landlord must refund the deposit plus interest and less valid deductions. The landlord's failure to make the refund may result in liability to the tenant for double the amount due, plus reasonable attorney fees.
A tenant in a building having four or more dwelling units may withhold rent if the tenant reasonably believes the landlord has failed to live up to the landlord's obligations, or if the landlord is found to be in violation of any law or regulation affecting health or safety. In order to withhold rent, the tenant must be current in his rent payments and give the landlord 30-days notice of his intention to withhold rent. The 30-day period gives the landlord an opportunity to remedy the problem. If the problem is not fixed, the tenant may withhold rent by depositing the rent payments with the clerk of the local municipal or county court. At the direction of the court, the rent withheld may be applied to correct the problem, or the court may order the monthly rent reduced until the problem is remedied.
When a tenant asserts his right to withhold rent a landlord cannot retaliate by raising the rent, withholding services, or attempting to evict the tenant. Acts of the landlord are not considered retaliatory if: the tenant created the problem which is the basis for his (tenant's) withholding the rent; the tenant is in arrears for rent; the tenant is holding over on his rental term; or correction of the problem would require demolition or remodeling of such major proportions that the tenant would lose the use of the premises. An increase in rent to cover improvements or increased costs is not considered retaliatory. If a landlord takes retaliatory action, the tenant can recover possession of the premises (if he has been evicted), terminate the rental agreement, or use the retaliatory action as a defense to an eviction. The tenant may also recover damages and reasonable attorney fees.
The technical name for an eviction action in Ohio is "an action in forcible entry and detainer." It is a quick method for determining the rights of landlord and tenant, and recovering possession of rented or leased premises. As a prerequisite to bringing an eviction action, the landlord must give the tenant at least three days' notice to leave. The notice must include a recommendation that the tenant seek legal advice if he is unsure about his rights. The summons issued by the court to the tenant must state that the tenant: (1) cannot be evicted unless his right to possession has terminated (a tenant's right to remain on the premises is terminated where, for example, the term of the lease or agreement is over, or the tenant has breached the agreement); (2) cannot be evicted in retaliation for asserting his rights; (3) if he is depositing rent with the court, he should continue to do so and may be evicted if he does not; (4) he has a right to jury trial in the eviction action; and (5) he has a right to legal assistance. In an eviction case the court determines who has the right to possession of the rented or leased property, and may also determine all rights and liabilities of the landlord and the tenant. For example, the court may order an appropriate governmental agency to inspect the property and report if any condition of the property violates the law. If such a condition exists and was caused by the tenant, the court may order the tenant to pay the landlord the reasonable cost of repairing the condition. Where the tenant did not cause such a condition, and the court decides the tenant should have possession, the court may order the landlord to correct the condition. Where the tenant did not cause such a condition and the court decides that the tenant should not have possession, the court may forbid the landlord from renting the property until the condition is corrected.
Articles appearing on this website are intended to provide broad, general information about the law. Before applying this information to a specific legal problem, readers are urged to seek advice from an attorney.
Reprinted and distributed by Fanger & Associates LLC with permission from the Ohio State Bar Foundation as a service to our clients and friends.
Excerpted from The Law And You, A Handbook of General and Everyday Law Affecting Ohio Citizens. Prepared for the Ohio State Bar Association by the Ohio State Bar Foundation. Copyright © 1997-1999 Ohio State Bar Association.
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