There are many times when legal disputes fall into the territory of who has the rights to what. This is especially true when it comes to real property or real estate.
Who owns the ultimate interest in the property? Who has the right to transfer the ownership or to amend ownership rights?
In this article, we will show you how a legal and equitable title differs in uses and applicability, as well as how it affects the interest of the property owner and related stakeholders.
What Is an Equitable Title?
An equitable title, as the name suggests, has to do with someone’s overall equity claim or interest in regards to the property (in comparison to a legal title’s full ownership of the same).
This means that a person would be entitled to the financial and equitable value that stems from real estate without actually owning it.
An equitable title may come in the form of full property equitable title rights or shares of equity in a property.
You’ll find such equity being exercised in situations where one party makes an equity claim on their home and/or other real estate properties for purposes of loans or credit assessments.
This often occurs during the many steps during transactions for the transferring of real estate property, where the buyer technically has an equitable title to the property between closing and the execution of a sales contract.
In other words…
The buyer, under law, can purchase the property in between the actual closing of the transfer of ownership.
This occurrence is overlooked as just “part of the process” but is key in understanding what one person has when putting an equitable title towards completion.
This also means that the buyer has the ability to put into action specifics such as loan approvals, due diligence, and related contingencies.
Within this time frame, a seller can’t just back out of a deal as the buying party has the equitable title/equitable rights to purchase the land/real estate/real property.
How Is This Different From a Legal Title?
As the title “Legal Title” suggests, a legal title is the ownership of a real estate/land that is enforceable in the law.
A legal title owner has the right to transfer this to another person or third party that they choose.
Note that this is different from title insurance, wherein title insurance indicates protection of the lenders and homebuyers sustained from losses generated by the defects in the legal title proper (a name out of place and other specifics can be massive headaches).
Compared to a legal title property owner, an equity title owner has no rights to the following:
- Exclusive possession, use, acquisition, and conveyance
- Access to an easement, hypothecation*, and partition
- Water, mineral, timber, farming, hunting, and grazing rights
- Easement to the neighboring property for utility lines
- Tenancy improvements
- Air rights
- Development rights to erect improvements
- Appearance rights subject to local zoning and deed restrictions and ordinances
A legal title owner has full rights to this in addition to the right to transfer ownership.
A legal title holder also has the right to challenge a person with an equitable title attempting to encroach on the legal title rights above.
Ultimately, while the equitable title does have a claim towards the value of the land, as well as any increase in values or improvements made on it, the one with the legal title has the overall ownership of the property.
When Is an Equitable Title Applicable?
You commonly see the occurrence/usage of an equitable title during law discussions regarding trusts and trustees.
Trusts are common mechanisms found in many countries, such as the United States, that help people transfer land/real estate from one party to another, usually mediated by a lawyer/real estate lawyer.
The idea behind trusts works in the way that one party transfers property to a trustee (usually a lawyer/firm/bank) in order to transfer ownership of the real estate to another indicated party after a certain time frame (or when specific situations/criteria are met).
This means that while the trustee has the legal title paper interest under the law, the intended beneficiaries retain the equitable title and future equitable value that generates from the land/property.
The trustee, with the legal title under the law, remains as the party with the right to transfer the ownership of a real estate to the intended beneficiaries once the preset conditions are met.
As mentioned briefly above, equitable titles and legal titles often intersect in regards to the final steps of finalizing the property/land contract.
A situation where this legal title/equitable title action is applicable is during the financing of the real estate.
An example is when a buyer and a seller reach an agreement wherein the seller agrees to finance part of the purchase while allowing the buyer to reside in the property.
They could agree on a payment scheme wherein the buyer makes regular payments to the seller while living on the property.
In this situation, the buyer has an equitable title/deed while the seller retains the proper title deed/legal deed.
Once the buyer makes the complete payments, he then has the right to obtain full ownership of property under real estate law.
Legal Titles and equitable titles often intersect when it comes to man real estate transactions.
So, being aware of how they differ can benefit you in understanding how property is properly split between the relevant parties.
Remember that an equitable title relates to the equity inherent to the property. An equitable title doesn’t grant ownership and is not necessarily enforceable in court against someone with a legal title.
A legal title, on the other hand, deals with the actual ownership of a property/land/real estate.
This means that most legal title holders have a better say on what goes on within a property versus that of holders of an equitable title.
So equitable title relates to the value of the property, while legal title relates to who owns it. Got it?
We hope this article has helped you better understand the ins-and-outs of a basic equitable title as well as the different scenarios you may be faced when that indicates an application of this title action.
Keep this in mind with dealing with any clients regarding real estate, you may save yourself some issues regarding who owns what with a proper understanding of these two titles.