Glossary

Life Estate

An ownership interest in real property that lasts only for the duration of a specified person's life, after which title passes automatically to a designated remainderman or reverts to the original grantor.

A life estate holder (the life tenant) has the right to possess, use, and derive income from the property during their lifetime but generally cannot commit waste that impairs the value of the remainder interest, and typically cannot convey a fee simple interest to a third party since their own interest is inherently limited. Life estates appear in CRE contexts mainly in estate planning and family-held property transfers, and they complicate financing because a lender extending a mortgage secured only by a life estate faces the risk that its collateral value could evaporate at an unpredictable time (the life tenant's death). Lenders underwriting such collateral typically require the remainderman to join in the mortgage or require title insurance addressing the merger of interests.