Equitable Title: Legal Definition & Examples

Updated October 31, 2023
9 min read
Equitable Title: Legal Definition & Examples

Introduction

Owning real property is a significant milestone for many Americans, whether they purchase or inherit a new home or a plot of land they can cultivate and earn from. A common legal concept that one may encounter in acquiring, buying, selling, or passing ownership of property is the concept of equitable title. 

Equitable Title Definition

In the corporate world, “equity” refers to the capital or investment one owns in a company. Theoretically, it’s possible to have equity and enjoy the rights that go with it without being the actual owner of the company. 

On the other hand, in real estate, when it comes to defining equitable title, this term is explained as “a beneficial interest in real property that gives the title holder the right to acquire legal title to the property.” Although it does not vest full ownership, it entails a right to eventually own the property once the holder of equitable title meets certain conditions. Make sure you have a signed and legally binding real estate purchase and sale agreement in your state to ensure smooth property management.

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What Are the Rights of One Who Has Equitable Title To Real Property?

One who holds equitable title to property usually holds a financial interest in it, such that if it appreciates in value over a certain period, it may stand to benefit from it. They may also have the right to enjoy, access, or possess the property. However, a holder has no right to transfer ownership or sell the property In some cases, they may be permitted to sell their interest in the property, such as when a third party assumes a mortgage from a mortgagor. 

You may often encounter this term in trust and mortgage contracts, which is discussed in greater detail in the latter part of this article.

Examples of Equitable Title

You may encounter issues with equitable title in cases that involve the following:

  • Trusts;

  • Mortgage;

  • Investments.

Equitable title in trusts

A trust is a fiduciary agreement that involves three parties: a trustor (also known as a grantor or settlor), a trustee, and a beneficiary. In a trust agreement, the trustor gives the trustee the right to hold title to and manage property or assets for the benefit of the beneficiary. 

Trusts are a usual estate planning strategy that allows property owners to spare their heirs from lengthy and expensive probate proceedings after death. By setting up a trust, they can control how their properties will be managed prior to passing it on to beneficiaries. 

In a trust agreement, the trustee holds legal title and manages the property or assets. However, it is the beneficiary of the trust that holds the equitable title, as they can already benefit from any appreciation in the value of the property while the faith is in effect. Upon the expiration of the trust agreement, or when certain conditions have been met, legal title to the property may eventually be passed on to the beneficiary. In cases where there are multiple beneficiaries, the trustor may specify in the trust agreement how it is to be divided.

Equitable title in the purchase of real property

Purchasing real property, such as land or a home, is expensive, which is why many Americans take out a mortgage in order to do so. A mortgage contract is an agreement wherein a borrower takes out a loan from a lender, and the lender has the right to take the property in the event that the borrower fails to pay. 

When a buyer of real property executes a purchase and sale agreement with a seller, the buyer acquires equitable title to the property. This means that they have the right to eventually obtain full legal ownership of the property as long as they pay the purchase price. This also means that the seller, who still holds the legal title, can no longer sell the property to another party unless the buyer fails to make payments, which may terminate the purchase and sale agreement. Once the purchase price has been fully paid, the legal title shall be transferred to the buyer by transferring and registering the deed to the buyer’s name. 

Equitable title in investments

The concept of equitable title may also apply to investments, especially in real property. For instance, a property investor may invest in land by constructing buildings and improvements or by planting crops on the land by virtue of an agreement with the owner or legal title holder. They may not hold legal title to the land, but as an investor, they have a beneficial interest in the land and any profits that may be realized from the crops, buildings, or improvements. Depending on their agreement with the legal title holder, they may also have the right to access the property and prevent the legal title holder from selling to a third party.

What if I Have a Dispute Over the Title?

In some instances, the legal title holder may get into a legal dispute with the equitable title holder. This occurs when the two parties face difficulties reconciling their rights and interests. Whether you hold equitable title or legal title, it is best to consult a litigation lawyer or property lawyer to advocate for your legal rights and settle disputes in the most cost-efficient and amicable way. 

The Takeaways

Property ownership comes with many complex rights and responsibilities. It can become even more complicated when ownership rights are split between two parties: the equitable title holder and the legal title holder. In order to avoid disputes, it is important for parties to have a detailed understanding of the rights and duties of each party. 

For any needs regarding legal advice, contract templates, or professional representation in real estate law, Lawrina can serve as a comprehensive resource. Access expert real estate lawyers experienced in a wide range of real estate transactions and disputes. Lawrina also provides a variety of professionally drafted real estate contract templates, catering to diverse needs. These resources can give you peace of mind during any property transactions and ensure you understand your rights and responsibilities fully, whether you hold equitable or legal title to a property.

Article by
Ilona Riznyk
Lawrina

Ilona Riznyk is a Content Specialist at Lawrina. In her role, she creates and manages various types of content across the website, ranging from blog articles to user guides. Ilona's expertise lies in meticulous fact-checking, ensuring all the published content is accurate and reliable. 

Frequently Asked Questions

Can equitable titles be transferred or sold?

Yes, equitable title can be transferred or sold. Depending on the terms of the contract, a person with equitable title can sell their interest in the property, although it's important to note that they're selling their right to acquire legal title in the future.

 

The new buyer steps into the shoes of the original buyer and assumes the responsibility to fulfill the contract terms, such as completing any remaining payments. The seller, or the holder of the legal title, would then transfer the legal title to the new buyer upon completion of these terms.


 

What happens if a dispute arises between the holder of the legal title and the holder of the equitable title?

In case of a dispute between the holder of the legal title and the holder of the equitable title, resolution usually occurs through court proceedings. The equitable title holder may file a legal action to assert their rights, and if successful, the court may order the transfer of legal title.

 

Most disputes arise over instances of non-payment or breach of contract terms. Whoever holds the equitable title must fulfill the stipulated obligations to receive the legal title. Engaging a knowledgeable real estate attorney is crucial when such disputes arise, as these scenarios can become legally complex.


 

Can I obtain both an equitable title and a legal title at the same time?

Yes, it's entirely possible to obtain both an equitable title and legal title at the same time. This generally happens during standard real estate transactions where the buyer pays the full purchase price at the time of contract execution.

 

Upon signing, the buyer gains equitable title, and as they provide immediate payment, the legal title gets transferred simultaneously. Therefore, in such scenarios, the buyer has both the right to ownership (equitable title) and the actual ownership as recognized by law (legal title) concurrently.