LEGAL VS. EQUITABLE INTEREST IN REAL ESTATE


Legal Title

A legal title refers to the responsibilities and duties the owner has in maintaining, using, and controlling a property. Legal title is the actual ownership of the property. The documented name of the property owner, as visible through the public records, typically describes the person with legal title. Legal title grants true ownership of the property, and all that this entails 鈥 the bundle of rights that comes with land ownership. These rights include:

Mineral rights
Easement rights
Development rights
Possession and control
Exclusive use
Conveyance rights
Right of disposition

You have legal title if your name appears as the grantee on a deed. Legal title is 鈥渁pparent鈥 ownership, or ownership that is documented on paper. You may assume that your ownership of a property is complete with legal title, but this is not the case. Another party may have equitable title, restricting some of the ways you can use and enjoy the property.

Equitable Title

While a legal title focuses on the duties of the property owner, equitable title refers to the enjoyment of the property. Equitable title is the benefits the buyer will get to use and enjoy when he or she becomes the legal owner. Equitable ownership is not 鈥渢rue ownership.鈥 In other words, someone with equitable title could not argue that he or she was the legal owner or possessor of the property in a court of law. True ownership requires legal title. Equitable title does, however, grant the person more consistent control over the property. That鈥檚 right 鈥 equitable title can be more important than legal title.

With words like 鈥渂enefit鈥 and 鈥渆njoy,鈥 you may assume that having equitable title does not come with a lot of ownership rights. In fact, the opposite is true. For example, the person with equitable title is often in charge of financing the property. Equitable title gives the right to access the property, and 鈥 most importantly 鈥 the right to acquire formal legal title of the land. Keep in mind that equitable title does not actually transfer ownership of the property. It simply gives the individual or entity the right to the use and enjoyment of the property.

When purchasing a piece of property, it is important to gain equitable title. This will come with the right to obtain full ownership and property interest in the future. Equitable title establishes the person鈥檚 financial interest in the property. A property investor, for example, may hold equitable title but not legal title. Equitable titleholders will benefit from the property鈥檚 appreciation in value. Upon receiving legal title, someone with equitable title can then transfer the property to someone else and keep the difference in price of the home due to appreciation.

Equitable Title vs. Legal Title: Differences and Similarities

The main difference between an equitable title vs. a legal title is that the latter is the only one that gives actual ownership of the property. There are many smaller, more intricate differences that can vary on a case-by-case basis. In general, equitable title gives a person the right to use the land and enjoy the benefits that come along with its ownership. Legal title does not necessarily grant these rights. Equitable title does not allow the titleholder to sell or transfer ownership. 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 demand compensation from parties that purchase or lease the property.

There are similarities between the two types of titles. Look at them as two halves of the same whole. Both grant certain rights to the individual or entity whose name appears on the title deed. Both are legally binding and enforceable in a court of law. An owner needs both to have 鈥渇ull鈥 ownership and use of a property. In property purchases that use traditional mortgage loans, the distinction between equitable title and legal title does not apply. Instead, the bank or lender will confer both titles to the property in question using a deed of trust. The lender will then retain financial and legal interest in the property until the buyer pays off the loan.

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