When a buyer and seller execute a binding purchase agreement, the buyer receives equitable title while the seller holds bare legal title. Equitable title gives the buyer an insurable interest in the property and the right to compel the transfer of legal title through specific performance if the seller attempts to back out. The doctrine of equitable conversion treats the buyer as the equitable owner of the property from the moment of contract execution.
A buyer signs a purchase agreement on January 1 with a closing date of February 15. Between those dates, the buyer holds equitable title. If the property is damaged by a storm on January 20, the question of who bears the risk of loss depends on whether the state follows the doctrine of equitable conversion or the Uniform Vendor and Purchaser Risk Act.
Remember: equitable title is not the same as legal title. Legal title transfers only when the deed is delivered. The exam may ask when equitable title is created — it is created when the purchase contract is executed, not at closing. Also know that equitable title gives the buyer standing to file a lis pendens.
Related Terms
Related Concepts
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Consideration is something of value exchanged between parties to a contract, making the agreement legally binding. It can be money, a promise to act, a promise to refrain from acting, or anything else of value.
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Frequently Asked Questions
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