Life estate VS fee simple

[PropertyEconomics]

If you are appraising a fee simple property as of a future date (propective), you may be able to appraise the fee simple interest without the hypothetical condition, and use the necessary extraordinary assumptions (e.g., parties have agreed on the date of value to combine their interests to create the fee simple estate).

David, I would agree with you its possible, the real difficulty, as you are well aware, is appraisal of a prospective interest as of a future date which is tied to someones death. How you would estimate that date of death and be accurate (to even within a few years in most cases) would be a very real chore. Much harder to do in my opinion, although, theoretically it could be done.
Its not an assignment condition I would accept.

 

[Don Clark]

Quote:
When doing an appraisal for such a sale, the fee simple interests are not hypothetical. The two can also come together and take out a mortgage jointly on the fee simple interest of the property. The fee simple interest, when they do come together, applies. In such a case, if the house is foreclosed on, both parties are responsible for the mortgage and both interests are foreclosed on with the lien holder taking fee simple title.

If they must come together (or can as you state come together) obviously they each own separate interests dont they? And therein lies the answer to your question. The whole bundle of rights did not exist as of the date of the appraisal .. even by your own admission. That being the case, the fee simple interest can only be appraised under the hypothetical condition that a fee simple estate exists as of the effective date of value.
As you can see, the hypothetical condition is necessary as it it contrary to what exists as of the date of appraisal.

PE,

And that my friend really does sum it up. Thanks to you, Steven, and a few others who really do understand the concept of Real Property as opposed to Real Estate, this should be, but obviously won't be the last word on the issue. I am not a lawyer, but I did teach Real Estate Law as a pre-licensure course for real estate brokers from 1987 until 1993. I would recommend such a course for any appraiser, and in particular, the participants in this thread. And, since I was the remainderman in a property I owned some years ago in which I had granted my mother a life estate(Actually, this was when i was much younger and she had it set up that way), I have had first hand experience on how the process works. Also, I have appraised a property where the remainderman attempted to get a mortgage on the property. Problem was, he was not listed as the owner. His mother held a life estate in the property. I listed her as the owner, put an asteric in the box for Fee Simple, and wrote an explaination of what actually existed as of the date of the appraisal. I have no clue what the lender finally did. I was never asked to change anything on the report. But, that was before the days of irrational exuberance, and the resulting down turn in the market.

 

[The Warrior Monk]

David, I would agree with you its possible, the real difficulty, as you are well aware, is appraisal of a prospective interest as of a future date which is tied to someones death. How you would estimate that date of death and be accurate (to even within a few years in most cases) would be a very real chore. Much harder to do in my opinion, although, theoretically it could be done.
Its not an assignment condition I would accept.

I specifically mentioned a condition as an example:

e.g., parties have agreed on the date of value to combine their interests to create the fee simple estate

In order to use the extraordinary assumption, the probably of combining the rights has to be realistic by the prospective value date. If a 25-year-old vegetarian marathon runner that practice yoga holds the life estate, it wouldn't be reasonable to assume he/she is going to be pushing daisies in 3 months time.

However, if both parties agreed in principle to combine the rights, and action has been taken towards that end, the assumption would be reasonable.

 

[Mztk1]

We have a fundamental difference of opinion.

For property rights, let's use the metaphor "exists".

You believe that if George were to gift Ringo the remainder interest of his estate, that at the moment the agreement is signed the fee simple rights to the estate are obliterated, gone, out of existence only to re-emerge or resurrect upon select events, including the death of George.

I believe that the fee simple rights continue to exist but upon agreement they were split and/or surrendered and now neither George nor Ringo hold them. But upon George's death Ringo will regain full possession.

Believing as you do, you are correct, the rights are gone and the appraisal cannot be made "as is" if you are appraising the fee simple interest in the property. As you say, those rights, non-existent, are hypothetical only.

Believing as I do, the fee simple rights continue to exist, I just have to identify that those are the rights I am appraising and disclose they are encumbered by the agreement. Just because neither Ringo nor George have full possession, it doesn't mean they do not exist and it doesn't preclude me from appraising them. My assignment is to appraise the fee simple interest, not George's interest or Ringo's interest. In my opinion, fee simple rights obviously exists because a buyer can have an interest in buying them from both George and Ringo and George and Ringo can agree jointly and sell them. You might say that the buyer has an interest in something that does not exist and that only pops back into existence when George and Ringo make the joint agreement to sell, and that it is obvious the rights do not exist until that point because possession is the basis of the existence of rights. It's a moot point and why I said above that I leave it to Plato and Aristotle.

These are fundamental differences and I don't think they can be resolved. When I spoke to the ASB board about it they stated it was a matter of methodology and USPAP does not regulate methodology. I agree.

 

[The Warrior Monk]

I view your example as measuring all property rights against some ideal. The problem with that is that there is no ideal to measure the property rights against; such a concept does not exist in appraisal or legal theory to which I am aware. Each assignment exists on its own.

Why should the possible combination of property rights stop at simply combining divided estate that exist on one particular parcel of land, which of course is one set of rights that was created from another larger set of rights. Theoretically, of course, it shouldn't. It would just be the appraiser's own personal preference to do so.

 

[Webbed Feet]

I agree with you in principle, but not in terminology. I don't know why you think the estate in remainder as you like to call it, isn't fee simple. I have seen three deeds creating life estates. All three granted fee simple to the remainderman, while reserving a life estate for another party.

The "Estate in Remainder or Reversion" as they are actually called, not as I like to call them, are not currently possessory for the holder of them. Therefore, until any Life Estate is extinguished, they are not a "Fee Simple Estate" or any other variation of that also known as "Fee," or "Fee Simple Absolute." The only reason they are even an "Estate" is due to the facts they are not fixed or certain regarding their duration and the interest will become possessory at some point in the future.

Your deeds were simply worded poorly. The "grant" worded like that was for at the time of the end of the Life Estate. A Fee Simple Estate and a Life Estate cannot be simultaneously granted to different parties at the same time regarding the same land. Because the party not getting the Life Estate cannot take possession. So your deeds showed intent and bad legalese out of whoever drafted them.

It's part of a larger issue that crept in before with Pete's post about whether "leased fee" is actually a separate "estate" or just a slang label made up by appraisers for "fee simple as leased." The deeds that convey the real estate say "fee simple" (both for properties encumbered by leases and life estates) and one of the three defining criteria of fee simple is that it is perpetual. However, you can always find an appraiser who will argue that, as you say, "there is no fee simple." If it's perpetual, how can it disappear on appraiser fiat?

I can't help the fact my ahhhh, errrrr, "Peers" should have gotten agency licenses so that they studied a few more things than just appraisal texts. If they had of bothered to do that they might have figured out that a lease IS for a fixed or certain duration. Therefore, it is not a Freehold Estate. It is a Less-Than Freehold (Leasehold). This makes creating something in nominclature called "fee simple as leased" a creating of something that just does not work under any hierarchy of estates ever created.

A deed that still mentions fee in relation to a lease computes because the lease is not Freehold. "Fee" and "Life Estate" only compute as far as showing intent.

Regarding other deed restrictions, people in the thread are headed off down a one way path having nothing to do with Life Estates. In some cases they are headed into nothing at all other than their own confusion. They are headed into estates lesser than Fee Simple Absolute by bringing up what are really called "Defeasible Fee" or "Fee Simple Qualified." Also known as "Fee simple determinable" and "fee simple subject to a condition subsequent."

Perpetuity: We cannot treat this word like we do in religion when referring to a deity. Because the argument breaks down upon escheat, and breaks down really badly at the end of society as we know it or the extinction of mankind. Or simply a reversion to the American indian way of life. After land reverts to the State (crown) it can't very well any longer be called a Freehold Estate as we can't very well expect the State to will it to anybody or there to ever be any "inheritors" at that point, now can we? It is no longer owned by a person, or persons, it is owned by the public.

If we all want to get really stupid about this we can hold forth that there is no such thing as any Fee Simple Estate. Because the State (crown) always holds an Estate in Reversion for all perpetuity and all of us only have Life Estates for the life of our blood line or willed property. If we fail to propagate, or will our property, it goes back to the State (crown). .... Well, for as long as there is a State that is! .. Let me see, next we have the Federal government and after that... hmmmm?

I guess the next time I get a SOW for the market value of a Fee Estate.... I'll have to appraise the underlying part owned by the State. Gosh, mortgage that client! Hmmm, can the State mortgage publically owned land? No wait, the State only has a Life Estate granted by the Federal government. The Federal government only has a Life Estate granted by........ would that be legitimacy or God?

Webbed.

 

[Mztk1]

I've been in the business since 1990, appraise plenty of wacky things, but have never come across this situation for a lender.

I live in the land of the dead and dying here near Sun City Florida (no offense to anyone reading who might live here), I appraise houses with life estate interests on a regular basis. It is a very common animal.

What Don did in his example, with the asterik under "Fee Simple", is a good method. That's why he didn't hear back. It would be just as good today. It tells the client all they need to know. That is, if you are going to invest on the fee simple, market value of the property, you had better include the signature and agreement of both sides of the life estate agreement.

I was reading into the OP and my interpretation may be wrong, but the feeling I got was he appraised the property for mortgage purposes, developed an opinion for market value in the ordinary way, and called it the value of the life estate because the house happens to be held in a life estate. I asked in my first post if he used life estate comparables, etc., but did not get an answer to that question back.

 

[Webbed Feet]

To All,

As I score this, if I have it right. We pretty much have Mr. Klos and Mr. Pete versus everyone else... Because I believe just about everyone else says a HC is needed to opine about a Fee Simple value when a Life Estate exists on the effective date of the analysis. A couple of people are not saying it quite like that, but that is what it amounts to, an HC being used but the words HC are not being expressed.

Webbed.

 

[Mike Seward]

Jim,
As I said yesterday in post #18:

"This is for a non FHA reverse mortgage where the life estate holder AND the remainderman are on the note. All interests are pledged to the bank and the bank is happy.

I'm thinking that even though the bank has gathered all of the bundle of rights, the ownership is still that of a Life Estate."

My question was about terminology.

FTR, I didn't do the appraisal. A friend in Tampa did it and asked my opinion. They also called a real estate lawyer friend who said it was a "conditional fee simple ownership".

 

[Fred]

The "Estate in Remainder or Reversion" as they are actually called, not as I like to call them, are not currently possessory for the holder of them. Therefore, until any Life Estate is extinguished, they are not a "Fee Simple Estate" or any other variation of that also known as "Fee," or "Fee Simple Absolute."

Really? I went into my files. I am looking right at a deed. The father grants fee simple to the son, and sets aside a life estate for the wife. I know, it's "badly written," because it doesn't say what you want.

I am perfectly willing to believe you that this son (remainderman, holder of the estate in remainder, whatever) is not the owner of the fee simple title. I really am. However, it is going to take more than you repeating - It's not fee simple, it's not fee simple.

It just so happens to have all three criteria of fee simple listed in Black's Law Dictionary. It's disposable - the son can sell his interest. It has descendability - it passes to his heirs. It has durability - it will pass to heirs in perpetuity. As you say, the chain can break if there are no heirs. So?

I can't help the fact my ahhhh, errrrr, "Peers" should have gotten agency licenses so that they studied a few more things than just appraisal texts. If they had of bothered to do that they might have figured out that a lease IS for a fixed or certain duration.

I had property law in college, before I ever saw an appraisal book. I don't know if that nullifies your peer theory.