Test Prep Courses/Illinois Real Estate Broker License Exam: Study GuideCourse
- AuthorScott Wilson
- InstructorShawn Grimsley
Shawn has a masters of public administration, JD, and a BA in political science.
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Find out what an equitable title is. Read about equitable title vs. legal title. Discover the definition of legal titles and equitable rights of titleholders.Updated: 11/21/2023
Table of Contents
- What Is an Equitable Title?
- Legal Title
- Equitable Title vs. Legal Title
- Legal Title Applications
- Equitable Title Applications
- Equitable Rights and Title Disputes
- Lesson Summary
Frequently Asked Questions
When a buyer requires an equitable title, what rights does that buyer have?
A real property buyer must agree with a seller on the terms of purchases to get an equitable title. They have the right to enjoy, access, and use possessing the property and eventually gain full ownership if they finish paying for it.
What is meant by equitable rights?
Equitable rights are the rights recognized by the law and guaranteed by equity. It is different from legal rights as legal rights get their authority from legal sources.
What is an equitable title example?
A person is buying a house from a seller but does not have the full amount. Instead, the person makes monthly installments and enjoys the benefit of it, as there is an equitable title. The house is not owned outright until the last installment of the mortgage is paid.
Table of Contents
- What Is an Equitable Title?
- Legal Title
- Equitable Title vs. Legal Title
- Legal Title Applications
- Equitable Title Applications
- Equitable Rights and Title Disputes
- Lesson Summary
A title is a general term in real estate that means a person legally owns a piece of real estate and has the right to use and enjoy it. The title refers to the legal ownership of the real estate piece and all the rights usually attached to it. The law allows for titles to be split into two main categories—Equitable and legal. A legal title doesn't involve the right of beneficial use, while an equitable title doesn't offer legal ownership.
An equitable title can be defined as the rights a person or an individual enjoys and the benefits that come with property ownership despite not being the legal titleholders. The equitable title is also related to the financial perspective of the property owner.
Real estate has a list of traditional legal rights related to ownership, and the most important rights include the right of possession, right of control, right of disposition, right to derive income, and the right of exclusion. Right of possession states that a property is owned by a property holder, while control states that owners have exclusive control of their properties but must adhere to the set rules and laws. Exclusion excludes trespass from the owners' property, and disposition right enables the property owners to pass down ownership.
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Legal title is the actual ownership of a property exactly as it appears on the deed. A deed is a legal instrument used to transfer a legal title to someone. The sole purpose of a deed is to legally transfer the title of a property or an asset from one owner to the other.
The legal title definition, therefore, refers to the ownership of a property recognized by the formal laws, including all the legal rights not limited to ownership and possession. The seller of a property keeps the legal title of the property planned to be sold or whose selling is in progress. It is not until the final payment that the buyer in a contract for deed usually obtains the legal title.
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A property's title is split into two categories: legal and equitable. The legal title of a property refers to the legal ownership which comes with the right to control the property in compliance with the law. An equitable title gives a person the right to enjoy the benefits that come with the ownership of a property despite them not being the legal titleholders.
The most significant difference between an equitable and a legal title is that a legal title gives absolute ownership of a property while an equitable title does not. An equitable title only gives an individual the right to enjoy the benefits that come with ownership. A legal title also gives the owner the right to transfer ownership which the equitable title does not. With a legal title, the owner can demand compensation for his property, something that cannot be done with an equitable title.
Equitable and Legal title similarities include that they grant certain rights to the individuals whose names appear on the deed, and both are legally binding and can be enforced in a court.
A hypothetical example includes Business A, which has the legal title of a premise, while Business B has the equitable title. Business A is the recognized owner, although it is not entitled to using and enjoying the house, while Business B, which has the equitable title, has the right to use and enjoy the premise.
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A real estate bought through a contract has a legal and equitable title. A land sale contract is also known as the real estate installment contract, and the owner of the land being bought agrees to sell the land to a buyer with an installment paying plan. Buying in installments gives the buyer a chance and a particular period to clear the balance instead of dishing out a large sum of money at once.
An example of how land contracts work is when Business X changes locations and needs to sell its property to business Y. Since business Y does not have the full amount of money, Business X comes up with an installment plan for Business Y to use in payment. While Business X allows Business Y to start its operations, Business X does not give the title deed to business Y. Instead, Business X keeps their name in the deed to ensure payments from Business Y. Business X is the legal Title owner of the company.
Trust properties are properties placed between trust and trustee for a specific beneficiary. The beneficiaries are the subjects who benefit from the trust properties. The trustee in charge must safeguard the assets in compliance with the wishes of a trustor. A trustee holds legal title for the benefit of the trustee beneficiaries.
For example, when a father takes trust for his children, he is responsible for paying all the taxes on the income of the trust assets since he is the legal owner and has all the control and possession rights. He is the legal title holder and does not enjoy the benefits of the trust.
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Equitable titles in land sale contracts.
A contract for deed is a legal document that authorizes a person buying a house to deposit monthly installments, and this is where they obtain the equitable title. For example, a person is buying a house from a seller, but they do not have the full amount, so they have to make monthly installments, but they get to live in the house and enjoy its benefit because they have an equitable title. They do not own the house legally until they pay their last installment.
Equitable titles in trust property are held by the beneficiaries of the trust assets. The trustee has the property's legal rights and is authorized to transfer property when they wish. For example, beneficiaries have an equitable title and are allowed to enjoy the benefits made by the property increase in value without having the legal ownership of the property.
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Equitable rights are the rights recognized by the law and guaranteed by equity, and they are different from legal rights as legal rights get their authority from legal sources. Disputes can arise between two parties with a split of the legal and the equitable titles as their rights in each title can vary based on the title agreement. A person with equitable rights is not authorized to sell or transfer ownership of a property.
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Title is a general term in real estate that means a person legally owns a piece of real estate and has the right to use and enjoy it. The title refers to the legal ownership and all the rights that are usually attached to it. A deed is a document used to transfer legal title to someone, and the buyer in a contract for a deed usually obtains legal title upon final payment. The legal title of a property refers to the legal ownership which comes with the right to control the property in compliance with the law. In contrast, an equitable title gives a person the right to enjoy the benefits that come with the ownership of a property despite them not being the legal titleholders.
The most significant difference between an equitable and a legal title is that a legal title gives absolute property ownership while an equitable title does not. Equitable and legal titles can be applied in land sale contracts and trust property as they grant a certain number of rights to the individuals whose names appear on the deed, and both are legally binding and can be enforced in court. A trustee holds legal title for the benefit of the trustee beneficiaries. Equitable rights are the rights recognized by the law and guaranteed by equity, and it is different from legal rights as legal rights get their authority from legal sources. Disputes can arise between two parties with a split of the legal and the equitable titles. Their rights in each title can vary based on the title agreement.
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Video Transcript
Title Defined
If you own your home, you are said to have title to it. Title is a general term used in real estate that means ownership over a parcel of real estate. If you have title, you have the right to possess the real estate. You also hold a bundle of legal rights related to ownership, such as the right to occupy, use, enjoy, control, and transfer the property unless one or more of these rights have been transferred to someone else. Interestingly, title to a parcel of real estate can be split, where one person holds some of the rights and another person holds the other rights. Let's take a look.
Legal Title vs. Equitable Title
Title to a property can be split into legal title and equitable title. Legal title represents the legal ownership along with the right to control the property in many circ*mstances. Legal title is transferred from one person to another by a deed. On the other hand, the holder of the equitable title has the right to the use, enjoyment, and benefit of the real estate. For example, if Alvin holds legal title to a house, but Beth holds the equitable title to it, Alvin is recognized as the legal owner but is not entitled to the use and enjoyment of the house. Since Beth only holds equitable title, she doesn't own the house but she does have the right to use and enjoy it, something that Alvin doesn't get to do.
Land Sale Contracts
Title to real estate bought through a land sale contract is split into legal title and equitable title. A land sale contract is also known as a contract for deed or a real estate installment contract. It's a transaction where the owner of a parcel of land agrees to sell the real estate to a purchaser on an installment basis, which means that the buyer will make a series of payments over a particular period of time rather than making one lump sum payment. Let's look at an example.
Wendy owns a house and decides to sell it to her friend Zack. Zack is unable to obtain a bank loan so Wendy agrees to let Zack pay for the house over a ten-year period with 120 equal monthly payments. While Wendy let's Zack move into the house and use it, Wendy does not deed the house to Zack. Instead, she keeps title in her name to make sure Zack keeps paying. The law generally will recognize that while Wendy holds legal title over the property, Zack holds equitable title. Wendy really is just acting as a lender and keeping the title as a form of security to ensure that Zack keeps his end of the bargain. While Wendy still legally owns the house, it's Zack who gets to make beneficial use of it. When Zack makes his final payment, he should receive a deed that will give him legal title, resulting in his equitable title and legal title merging.
Trust Property
The concept of legal and equitable title is also important when real property is held in a trust. A trust is a collection of assets where a person or entity, called a trustee, holds legal title over the assets but has a legal duty to manage the trust assets for the benefit of one or more persons known as beneficiaries. While the trustee holds legal title, the beneficiaries hold an equitable interest in the trust property. Let's look at an example.
Let's say that Abby is dying of cancer and has created a trust for her minor children Ben, Charles, and Dana. Abby appoints Edward, her brother, to serve as the trustee upon her death. Abby places all of her property, including the family home, into the trust. When Abby dies, Edward accepts the appointment as trustee and takes legal title over all the trust assets, including the family home. However, the beneficiaries of the trust, Abby's kids, have equitable interest in the trust assets, including equitable title to the family home. Should the trust be terminated at some point after the youngest child reaches adulthood, the legal and equitable title will merge and be held by the children.
Lesson Summary
Let's review what we've learned. In the context of real estate, title refers to legal ownership of property and the rights related to ownership. In some circ*mstances, title to real property may be split into legal title and equitable title and be held by different persons. The holder of the legal title legally owns the property and has the right to control it but is not entitled to make beneficial use of it. On the other hand, the holder of equitable title isn't the legal owner but has the right to make beneficial use of the property. Land sale contracts and trusts are two common situations where the law recognizes a distinction between legal and equitable title.
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