Joint Tenancy: Definition, Pros And Cons
Rachel Burris6-minute read
May 20, 2021
Have you ever thought of buying a home or vacation home with friends or family? You might be more interested in looking at listings for mountain getaways than learning about the ways that the law recognizes forms of co-ownership.
But if you want to protect your relationship with your co-owners while also protecting your rights, you’ll want to pay attention. Read on to learn about a joint tenancy and what it entails.
What Is Joint Tenancy?
Joint tenancy is a legal term for an arrangement that defines the ownership rights among two or more co-owners of a property. In a joint tenancy, two or more people own property together, each with equal rights and responsibilities.
While joint tenancy can apply to personal property, bank and brokerage accounts and business ownership, it’s most used for investments in real estate. When purchasing property, joint tenancy provides all parties with equal rights to and responsibilities for the real estate purchased.
Although joint tenants receive the same amount of interest in the property, there are limitations to how they can use their shares. The most critical condition of this type of ownership is that it includes the right of survivorship, which precludes co-tenants’ heirs from inheriting their shares of the property.
What Are Ownership Rights?
We tend to think of property ownership in binary terms: You either own it or don’t. But in reality, property ownership rights can take many forms, depending on what rights a person actually owns.
In fact, there are a variety of legally recognized co-ownership arrangements – like tenancy by entirety and tenancy in common – but joint tenancy is by far the most common, because most people who purchase homes together are in fact married or related and wish to pass their property to their joint tenant.
How Does Joint Tenancy Work?
The easiest way to think about joint tenancy is to think of joint tenants as married, even though any two people, entities or people and entities can form a joint tenancy. In other words, joint tenants share an equal interest in the entire property.
Any tenant can access all parts of the property without limitation or restriction. Joint tenants can be at the property at any time, either together or separately.
The key feature that distinguishes joint tenancy from other types of ownership rights is that the surviving tenant(s) acquires the shares held by another tenant upon their death.
What Is A Joint Tenancy With Rights Of Survivorship (JTWROS)?
Sometimes referred to by its full name or acronym, a joint tenancy creates rights of survivorship upon a tenant’s death. This means that when a joint tenant dies, their shares automatically transfer to the surviving co-tenant(s). In fact, from the moment of the tenant’s death, rights of survivorship, and responsibility for the mortgage, vest in the surviving tenant(s).
In the case of a conflict between joint tenancy rights and the deceased’s will, the rights of survivorship wins. The property does not go through probate, and the surviving co-tenant(s) immediately gains the deceased’s interest in the property, as well as all mortgage responsibility. The last living co-tenant becomes the sole owner of the property and may include the property in their will and bequeath ownership to their heirs.
How Is A Joint Tenancy Created?
Joint tenancy agreements can be entered into by nearly anyone: Married or unmarried couples, family members, investment partners or friends. Your real estate attorney can craft a co-ownership agreement that meets the legal requirements in your state and is in the best position to make sure that you are buying exactly what you think you are buying.
However, for a joint tenancy agreement to be made, certain conditions must be met. All co-tenants must acquire equal shares of the property through the same deed at the same time. With their equal interest, joint tenants also share equal financial responsibilities for the property, meaning all co-tenants are liable for any loans taken out against the property.
What If A Joint Tenant Wants To Sell Their Share?
A co-tenant may not sell their shares of the property without the consent of all other tenants.
In lieu of selling, a joint tenant can transfer their shares to another person. However, transferring shares terminates the joint tenancy agreement, forcing the new co-owner to enter a new ownership arrangement with the remaining co-tenant(s). The new arrangement, known as tenancy in common, will be discussed in more detail in the next section of this article.
What’s The Difference Between Joint Tenancy And Tenancy In Common?
Joint tenancy is similar to another common co-ownership arrangement: tenancy in common. These two ownership arrangements may sound nearly identical, and in fact, the names are sometimes muddled as well. However, there are key differences that must be understood before deciding between them.
While joint tenants must obtain equal shares of the property through the same title at the same time, tenants in common can split their interest however they like and enter into the agreement at any time. With a tenancy in common, financial responsibility can be assumed proportionately. Although joint tenants are equally liable for all debts against the property, tenants in common can use their own shares as collateral and take on sole financial responsibility for loans.
What Happens When Tenants In Common Want To Dispose Of The Property?
The most important difference between the two forms of ownership is that, if you enter a tenancy in common, you are not automatically creating rights of survivorship, so co-tenants can pass the property down to their heirs as a bequest.
Nor must you own equal shares and rights to the property. This means that if the co-owners wish to create a schedule of when each party may use the property, they are free to restrict their access in that way.
There is also more flexibility when it comes to disposing of the property, either through a sale, gift or bequest. Unlike joint tenancy, tenancy in common enables co-tenants to sell their interest in the property without the consent of the co-owners.
What Are The Mortgage Requirements For Joint Tenants?
Typically, borrowers must have a credit score of at least 620 and a debt-to-income ratio below 50% to qualify for a conventional loan. But when applying for a mortgage as a joint tenant, co-tenants can combine their income and debts to increase their chances of qualifying.
So, as long as each co-tenant has a strong credit score, they generally have an easier time meeting the DTI requirements and can even be approved for a lower interest rate.
Benefits Of Joint Tenancy
Joint tenancy provides a more accessible entry into homeownership for first-time home buyers and those interested in investing in real estate.
The most significant benefit of joint tenancy is that it makes homeownership more affordable. Joint tenancy enables co-tenants to split the down payment and provides them with an advantage when it comes to qualifying for a mortgage.
Joint tenancy also ensures that co-owners can share all responsibilities for paying off debts, maintaining and improving the property and renting it out (if the property is used to generate rental income). The fact that co-tenants possess equal shares of the property gives every party incentive to do their part to protect their investment.
Since joint tenancy includes the rights of survivorship, co-tenants also benefit from the ability to avoid probate, the lengthy legal process that the court system uses to validate wills. Instead of having to go through probate, the surviving co-tenant(s) has immediate access to their shares of the property regardless of whether the deceased had written out a will.
Drawbacks Of Joint Tenancy
The rigid conditions of joint tenancy may protect you if your co-tenant(s) attempts to take advantage of your investment. Still, those same conditions can make it challenging for you as well.
If a co-owner loses their job or runs into financial difficulties, the other parties involved in the agreement are responsible for continuing to make all mortgage payments and preventing the property from going into default.
If a change occurs in the relationship between joint tenants, difficulties can also arise. Since all decisions regarding the property must be made jointly, it can be challenging to navigate disagreements. No one can sell their shares of the property without the express permission of all other co-tenants. And, with the rights of survivorship, it is only the last living co-tenant who has the ability to pass the asset onto their heirs.
Although some married couples choose to hold property titles as tenants by entirety – a type of title that provides each spouse with full interest in the property – couples who decide to hold joint tenancy titles can run into issues if their marriage dissolves. Joint tenancy can add tension to legal battles, and regardless of whether the couple chooses to undergo divorce, each spouse will still be held accountable for all debts.
The Bottom Line: Working Out The Details Early Will Spare Hard Feelings Down the Line
Joint tenancy is a co-ownership arrangement that provides all parties with equal interest in and responsibility for the real estate purchased. Although this title structure can aid individuals in qualifying for a mortgage and purchasing property earlier in life, it’s crucial to think carefully about how you might want to dispose of the property later.
If you’re interested in learning more about ownership rights or the intricacies of the mortgage process, check out other articles in the Rocket Mortgage® Learning Center.
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