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Equitable Title

December 5, 2023
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Key Takeaways

Introduction:

When it comes to real estate and property law, understanding the concepts of “title” and “deed” is essential. Although these terms are often used interchangeably, they have distinct meanings. 

A deed is a written document that formally transfers ownership of a property, while a title refers to the legal right to ownership and the concept of ownership rights.

Key Takeaways:

  • Deed: an official written document that declares a person’s legal ownership of a property, while a title refers to the concept of ownership rights.
  • Title search: necessary to uncover any limitations on property use, such as easements or unresolved payments tied to the property.
  • Equitable title: refers to a person’s right to obtain full ownership or a property interest, while legal title refers to actual ownership and the right to transfer ownership to another party. In some cases, a trustee may hold legal title to a property while beneficiaries hold equitable title.
  • Contract for deed sale: a financing option where the seller retains legal title until the buyer completes the payments and obtains both equitable and legal title.
  • Chain of title: represents the historical timeline of title holders for a specific property and is crucial in establishing the validity of a title.

How it Works:

In a real estate transaction, when a seller transfers ownership of a property to a buyer, both the deed and the title are involved. During a transaction, the buyer becomes the grantee, and the seller becomes the grantor.

The deed is the official document that signifies the transfer of ownership, while the title represents the legal right to ownership. It’s important to note that a deed is a physical document that the buyer receives after purchasing the property, whereas the title refers to the intangible concept of ownership rights.

A title search is conducted to examine the chain of title, which is the series of documents transferring ownership from the original owner to the current owner. This search helps uncover any limitations on the property’s use, such as easements or outstanding liens. 

Determining the validity of a title is crucial in ensuring a smooth real estate transaction.

Key Components:

Equitable title refers to a person’s financial interest in a property. Legal title represents actual ownership and the right to transfer ownership, equitable title is associated with the financial interest. 

For example, in a trustee situation, the trustee holds legal title while the beneficiaries hold equitable title. A contract for deed sale is another scenario where the buyer has equitable title until they complete the payments and obtain both equitable and legal title.

Benefits:

  • A clear understanding of title and deed helps prevent disputes and ensures that property ownership is properly transferred.
  • Conducting a title search safeguards against any encumbrances or limitations on property use.
  • Equitable title allows for the financial interest in a property while legal title secures the right to transfer ownership.
  • Contract for deed sales offer an alternative financing option for homebuyers who may not qualify for traditional mortgages.
  • The chain of title provides a historical timeline of ownership for a property, establishing its validity and facilitating smooth transactions.

Takeaway:

Understanding the distinction between title and deed is crucial in navigating real estate transactions. Conducting a title search and examining the chain of title ensures the validity of a property’s ownership history. 

By grasping the concept of equitable title alongside legal title, individuals can fully comprehend the financial and legal aspects of property ownership. 

Consulting with a property lawyer can provide valuable guidance and legal representation in matters related to title and deed.

Disclaimer: The information on this website, including glossary definitions, is for educational and informational purposes only and not intended as professional advice. While we strive for accuracy, we make no guarantees regarding the completeness, reliability, or timeliness of the information provided. We are not liable for any loss or damage arising from your use of the site. Investment decisions in commercial real estate should be made based on individual due diligence and professional advice. Laws and regulations are subject to change; always consult legal and financial experts before making decisions.

Sources:

https://www.legalmatch.com/law-library/article/what-is-equitable-title.html

CRE Daily is a digital media company covering the business of commercial real estate. Our mission is to empower professionals with the knowledge they need to make smarter decisions and do more business.