What is equitable title?
How do you legally define it?
What are the important elements that you must know!
In this article, we will break down the legal definition of “equitable title”, so you know all there is to know about it!
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What is equitable title
Equitable title in real estate refers to a person’s right to the legal title of a property.
In other words, a person having an equitable title does not legally own the property or have legal title but has an interest in the title of the property.
An investor could have an equitable title to the property although the legal title holder is someone else.
The person with the legal title is the one who is the actual owner of the property whereas the person with an equitable title does not have actual ownership rights associated with his or her title.
You can consider an equitable title to be a person’s “enjoyment” of a property should they “become” a legal owner.
An equitable owner cannot claim title like a legal title possessor but can invoke rights on the property or exert control over it.
Equitable title definition
According to Thomson Reuters Westlaw Today, equitable title is defined as:
A beneficial interest in real property that gives the title holder the right to acquire legal title to the property.
In essence, a person having equitable title does not have an actual title but has a “beneficial interest” in a real property.
Equitable title vs legal title
A legal title refers to the actual ownership of a property as it appears on the property deed.
A person having legal title has all the rights, responsibilities and duties of a property owner, such as maintaining the property, using it and controlling it.
Having legal title means that you have legal rights (or duties) relating to:
- Easement rights
- Possession rights
- Usage rights
- Conveyance rights
- Disposition rights
- Mineral rights
- Development rights
- Farming rights
- Grazing rights
- Air rights
- Hunting rights
- Appearance rights
An equitable title, on the other hand, is not what’s documented on the deed of property or is “apparent” by looking at the property documents.
To have equitable title is to have certain rights to benefit from the property or enjoy its use.
What are the differences between equitable vs legal title?
Here are the elements of a legal title:
- It gives you actual ownership of a real estate property
- The legal title holder has the right to sell and transfer the property
- The person having legal title can demand compensation for the property in the context of a sale or lease
Here are the elements of an equitable title:
- It provides the right to use a real estate property or enjoy some benefits
- The equitable title holder does not have the ability to sell or transfer the property
- The equitable title holder’s name does not directly appear on the title deed
Although there are differences between equitable and legal title, there are also some similarities:
- The title holders have rights over the property
- The rights held are legally binding and enforceable in law
Deed of trust
One common example where you can have an interaction between equitable vs legal title is in the area of trusts.
A person may transfer land or real estate property to a trust.
In that case, the trust (through the trustee) will hold the legal title to the real estate property.
However, the trust beneficiaries will hold the equitable title to the property held in the trust.
In essence, the beneficiaries are the one that will ultimately benefit from the real estate property held and managed through the trust by the trustee.
Contract for deed
Another scenario where you can have equitable title (real estate) is in the context of a contract for deed or an installment-purchase agreement.
A contract for deed relates to a real estate transaction where the seller funds the buyer’s property.
In other words, the seller becomes the lender of the buyer instead of a bank or financial institution.
When a contract for deed transaction is structured, the seller retains the legal title to the property whereas the buyer will acquire an equitable title in the same.
In essence, the seller keeps the actual title to the property until the buyer has fully paid the balance of sale.
When the buyer’s payments are completed, the seller will then transfer the legal title to the buyer.
Real estate acquisition
You will also commonly find equitable titles be legally established in the context of a standard real estate acquisition transaction.
When a buyer and seller have an agreed offer to purchase without any contingencies, the period of time where the property is legally in escrow until the actual closing takes place is a period where the buyer acquires equitable title in the property.
In other words, although the legal title still belongs to the seller, the property is “legally frozen” until the property transfer documents are actually signed and registered.
During this period, the buyer (although not having legal title) has equitable interest in the property as the seller cannot transact the property with anyone else and has a duty to transfer title to the buyer.
There are instances where parties having legal title and equitable title get into legal disputes (also called title disputes).
Title disputes can happen when the interests of the legal title holder and that of the equitable title holder diverge and cannot be reconciled.
For instance, an equitable title does not give the right to a person to sell a property and he or she may want to take legal action to compel the legal title holder to do so.
Title disputes can be complex and will require the support of a litigation lawyer or property lawyer to deal with it.
In the event of a dispute, it’s important to have a good understanding between the rights and responsibilities of holding equitable title and legal title.
So what does equitable title mean?
What is an equitable title real estate definition?
Let’s look at a summary of our findings.
If you enjoyed this article on equitable title real estate, we recommend you look into the following legal terms and concepts. Enjoy!
Related Legal Topics
Deed holder rights
Contract for deed
Quiet title action
Deed of trust