Joint Tenancy: Definition, Pros And Cons

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.

Joint tenancy is a legal term for an arrangement that defines the ownership interests and rights among two or more co-owners of real 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 using their shares. The most critical condition of this type of joint ownership is that it includes the right of survivorship, which precludes co-tenants’ heirs from inheriting their shares of the property.

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 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.

It’s perhaps easiest 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 ownership of 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 joint tenant(s) acquires the shares held by another tenant upon their death.

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 owner’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.

It’s worth noting that if you’re not on the mortgage and responsibility becomes yours for the payments, you should make them because that will allow you to stay in your home. However, if the home does end up in foreclosure, it won’t reflect negatively on your credit score because your mortgage company doesn’t report credit anyone not on the note.

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.

Nearly anyone can enter joint tenancy agreements: 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’re buying exactly what you think you’re buying.

However, certain conditions must be met for a joint tenancy agreement to be made. 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.

A co-tenant may not sell their shares of the property without the consent of all other tenants.

Instead 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 a tenancy in common, will be discussed in more detail in the next section of this article.

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.

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. 

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.

The joint tenancy provides a more accessible entry into homeownership for first-time home buyers and those interested in investing in real estate.

Affordability

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.

Protection

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.

Access

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 going through probate, the surviving co-tenant(s) has immediate access to their shares of the property regardless of whether the deceased owner had written out a will.

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. 

Added Responsibility

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.

Relationship Strains

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 the property or 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 can pass the asset onto their heirs.

Although some married couples choose to hold property titles as tenants by the 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 until the person who gets the house refinances.

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.

Still navigating the legal ramifications of sharing ownership with another person? We’ve answered a few frequently asked questions to help you determine whether joint tenancy is right for you.

When do I need joint tenancy?

Once a spouse, beneficiary, domestic or business partner dies, joint tenancy can be used, allowing the deceased’s partner to access the property under the will. 

What forms of property can be held in joint tenancy?

In most cases, tangible and intangible property types can be held in joint tenancy. The property ownership types may include real estate, bank accounts, cars and investments.

Should a married couple be joint tenants or tenants in common?

Joint tenants and tenants in common are connected but have apparent differences in what they can do for couples. Tenancy in common can be valuable because it shows the couple’s property that they own together while still allowing them to choose who to give it to after they die.  Although this can be helpful, it does not guarantee a smooth transfer of rights. For this reason, joint tenancy is usually a better plan for married couples because when an owner dies, the property is automatically transferred to the surviving spouse. 

What happens when joint tenants separate?

When joint tenants separate, they must determine how to divide their property. Splitting their shares has to be done together, and both must agree upon the terms. Once they decide on the provisions, each joint owner holds a separate interest in the property.

What happens if one person wants to leave a joint tenancy?

To leave a joint tenancy, a person must give a valid notice, which is a written document stating that they’re ending the partnership. Similar to when joint tenants separate, both partners must agree upon the conditions, and then everyone in the joint tenancy must leave the property once the term is over.

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 buying a home as a joint tenant, get preapproved today. You can also give us a call at (833) 326-6018