Life estate VS fee simple

[Webbed Feet]

Mr. Santora,

Ok, we can use this one if you like.

"encumbrance: 產權負擔 "

I'll stop playing games anytime you decide to. Go back to "FreeHold Estates" instead of just "estates" which include even a month to month tenant as having an estate in the definition. I'm not in the mood for games. A Life Estate is not an encumbrance. Go chat about this with some federal judges or play with your Black's law dictionary all you want. I'll just agree to not agree with you.

Webbed.

 

[Webbed Feet]

Ok! I've read all of your comments about the LE and the form of ownership. I am really confused about if we would do the appraisal subject to with a HC. Seems like we got off track some where.

RSW,

If I have it correct, only two posters are fighting the idea that to appraise real property with a Life Estate in place, as if a Fee Estate existed instead, there must be a HC used to do that. Everyone else is saying an HC is required, even Mr. Santora and I in spite of our disagreement about encumbrances.

Webbed.

 

[Fred]

I'll just agree to not agree with you.

I am just telling what Black's Law Dictionary says and actual deeds say. You can make believe you disagreeing with me, if it makes you feel better.

Ok! I've read all of your comments about the LE and the form of ownership. I am really confused about if we would do the appraisal subject to with a HC.

I don't understand the question.

 

[aussie ken]

Here is a stip I received where the subject's ownership is that of a life estate.

"1. Appraiser to mark "Property Rights Appraised" to "Fee Simple" on the appraisal.... the lender's appraisal review dept said that even thought it is in a life estate, it is still considered fee simple and that if you would feel more comfortable, you can add a comment regarding the Life Estate. "

I'm thinking that life estate ownership doesn't have the same bundle of rights as a fee simpl estate.

Any thoughts?

Mike from 10,000 miles away this sounds an interesting assignment. Was the life interest over the whole property?.........I once did a valuation of a property with a life interest was exclusively to one bedroom and not the whole property.

 

[The Dog]

Having read all of the posts and definitions, I thought I would provide you with an actual example of a life estate.

Three years ago, I bought my neighbors property granting her a life estate. She is elder, her kids could not support her and she needed money upfront without wanting to have a bank own her property after she passes away.

The life estate (which she owns) is basically a prepaid rent (discounted sale price based on life expectancy). It is clearly defined that I own the property (remainder) when her life estate ends.

Now the interesting part is that her life estate is clearly defined by attorneys from her side and my side. Her life estate is only valid if certain conditions are met (ie taxes paid, maintenance kept up, remodels and additions etc cleared by me etc). While she has an estate in this property, it is the equivalent as if she prepaid her rents. The discount we applied towards the sale price was based on her anticipated life expectancy. I was gambling that she will not outlive the expectancy and she is gambling that she will outlive her expectancy and basically have free rent for all of those additional years.

As far as valuing it, the Duck probably summarized the valuation issues the best. With the exception that I do consider that a LIFE ESTATE is an encumbrance to my remainder as does the law per my attorney. My attorney and her attorney were very careful in making sure that the limitations and encumbrances we both faced were clearly understood. I cannot use the property to its fullest as it is encumbered with a potentially long "lease". Refinancing is very difficult, almost impossible. I cannot enjoy the property as I have a "tenant" on it. I cannot use the property as it belongs to my "tenant". All of those limitations have to be considered encumbrances to the full bundle of rights which I partially let her encumber. My full rights are not going to be restored until the life estate ends. As long as that estate is in use, I have limited rights to the property.

BTW, this is a ten acres and her estate is limited to about 2 acres clearly defined.

 

[Fred]

I once did a valuation of a property with a life interest was exclusively to one bedroom and not the whole property.

I have a feeling the boundaries were a little broader than that. Otherwise the life tenant would not be able to enter the site.

BTW, Webbed Foot, I hope didn't kick another of your trip wires by saying life "tenant." You are probably running short on feathers with all the flapping around you've been doing.

 

[Fred]

As far as valuing it, the Duck probably summarized the valuation issues the best. With the exception that I do consider that a LIFE ESTATE is an encumbrance

That like saying except for that one thing, Mrs. Lincoln probably enjoyed the play very much.

 

[Webbed Feet]

Dog,

I have to correct some things, you need to explain some things better.

If you purchased the real estate from the lady, you were the buyer, not the seller. In my world that means you paid her, not her paying you. So how that turned into a situation with her paying rent to you I have no idea. Something seems very left out in your explanation. Her paying the property taxes is her duty, not your income.

Next, since you are then the owner who then grants her a life estate, you end up with an estate in reversion, not remainder. You cannot be the grantor of the life estate and be a remainderman. A remainderman would be a third party. Example: You buy the real estate, grant her a life estate, and grant your son an Estate in Remainder that includes all of the remaining rights you own. You now no longer own any estate in the land at all as the grantor.

Additional Definition of Encumbrance: A claim against, limitation on, or liability against real estate is an encumbrance. Encumbrances include liens, deed restrictions, easements, encroachments and licenses. An encumbrance can restrict the owner's ability to transfer title to the property or lessen its value. It represents some right or claim of another to a portion of the property or to the use of the property.

Ok, here are the problems when people start applying words in the above out of context to the estates. Riddle me this. The moment you granted the life estate, who then is now the named owner of the Fee Simple Estate that existed just prior to that granting? Fact: You no longer own a Fee Estate, you own an Estate in Reversion. There is no known limit to the amount of time she will be in possession of the land. She could pull a Moses and live 400 years. She doesn't own the Fee Estate, YOU do not own a Fee Estate, who owns it? Without an owner, can it exist? You only own future rights to a different type of Freehold Estate at some future and unknown point in time. Today, as of this moment, you do not own that future estate, it has no owner, it does not currently exist. How can some currently nonexistent estate, that is not owned by anyone, be encumbered?

Why is the Estate in Reversion not encumbered? Tell me, what does she hold that is stopping you from selling your Estate in Reversion? Arguments such estates are hard to sell, or obtain a loan on, do not apply. Do not confuse “difficult” to sell with “restricted” from transferring ownership. You can still sell it, mortgage it, otherwise transfer the title to it. It perhaps could be said the life estate lessens the value of the Fee Simple Estate by causing one to no longer exist. But the life estate does NOT lessen the value of the Estate in Reversion. That value is simply what it is. At the extinguishing of the life estate, the Estate in Reversion's value is NOT going to go up! Because it will no longer exist. The Estate in Reversion will then be a Fee Estate. Only one with an owner.

Your additional rights to cause a Life Estate owner to ask “Mother may I?” to build a market acceptable and permitted addition is an atypical right for an Estate in Reversion holder. As building such would not “waste” the reversionary estate. Just the opposite I would say. Therefore, these additional rights your attorneys built into the granting of the life estate sound like deed restrictions ON THE LIFE ESTATE... Not on the Estate in Reversion. So a fact in my mind only I guess, if there really is anything that should at all be called an encumbrance, it is the life estate that has been encumbered, not the estate in reversion.

Come up with a deed restriction, or the lien, or the claim, or the limitation, or the liability, on the Estate in Reversion as placed there by the life estate holder, and I'll agree you have an encumbered estate due to something involving the life estate. But just the creation of a Life Estate does not automatically encumber either an Estate in Reversion or an Estate in Remainder. They can be freely transferred, they can be mortgaged. Difficult to do so does not equal restricted from doing so.


Webbed.

 

[Webbed Feet]

I have a feeling the boundaries were a little broader than that. Otherwise the life tenant would not be able to enter the site.

BTW, Webbed Foot, I hope didn't kick another of your trip wires by saying life "tenant." You are probably running short on feathers with all the flapping around you've been doing.

If you scroll up the thread you may find I very well might of used the words "Life Tenant" before you did. So why would that bother my feathers?... Besides, I think about the only aspect we don't agree on in this thread is the word "encumbrance" and the usage of it. So just not that much to get my feathers ruffled over!

But I have to admit, somedays on the forum it is like an attorney getting a phone call and the caller asking if they have reached a barrister, the attorney says; "Yes, I am a lawyer," and the caller replies "Sorry, but I have to have a barrister! " The attorney then says; "You need someone to speak for you in court under the guidance of a Solicitor? " and the caller replies back "No, why would I want a prostititute to do that? I need somebody to mock a situation, you know, a burlesquer. "

Webbed.

P.S. I made that one up!...

 

[Richard Carlsen]

Did you appraise the life estate or the fee simple interest?

Since the Life Estate has no value, you can appraise the fee simple value of the property and let the lender client worry about the leasehold interest. Just make sure you note that there is a life leasehold interest in the property that is not considered.

And yes you could say that you are doing an HC on the property but if you consider the property with the Life Estate leasehold, the property cannot have a Market Value since the life estate has no value.