You may have seen this term before when you are reading articles about mortgages. Equitable Title is a beneficial interest in real property (a house) that gives the title holder the right to acquire legal title to the property at a later stage.
If you read that paragraph carefully, you would know that Equitable Title is NOT legal title.
Equitable title holders cannot transfer legal title to real property, but they receive benefits from the property’s rise (appreciation) in value.
If we are looking at the example of an acquisition of real property, the purchaser holds equitable title to the property from the date the purchase and sale agreement (also known as APS) is executed, although legal title is not transferred until the deed to the property is transferred from the seller to the purchaser. Have we lost you?
Equitable title is also seen in certain states in the US where lenders secure loans on real property with deeds of trust instead of traditional mortgages. Now, although a borrower retains equitable title to the property throughout the pendency of the loan, it gives up legal title to the property to a third-party trustee until the loan is fully repaid to the lender. If we haven’t lost you yet… congratulations! You now understand what equitable title is!
Another Definition of Equitable Title
Here is another definition of equitable title. It is a beneficial interest in real property that gives the title holder the right to acquire legal title to the property. People who hold equitable title are not able to transfer legal title to real property. However, they get benefits from the property’s appreciation in value.
Equitable Title vs. Legal Title: What Are the Differences and Similarities
Legal title is the only one that gives actual ownership to a property. A good way of understanding equitable title is that it gives an individual the right to use the land and enjoy the benefits associated with ownership.
Equitable title does not allow the titleholder to sell or transfer ownership of the subject property. However, legal title is the only title that can do this. Legal title has the advantage over equitable in that it allows the legal titleholder to seek compensation from parties that purchase or lease the property.
Now let’s look at the similarities between the two types of titles. Imagine them as two halves of the same whole. In that both grant rights to the peson or entity whose name appears on the title deed. Both are legally binding and enforceable in a court. An owner needs both to have full and complete ownership and use of a property. It is very important to note that, in property purchases that use traditional mortgage loans, the difference between equitable title and legal title does in fact not apply. Alternatively, the bank or lender will confer both titles to the subject property using a deed of trust. The lender will then maintain financial and legal interest in the property until the buyer pays off the loan.