What is equitable interest? An equitable interest is an "interest held by virtue of an equitable title (a title that indicates a beneficial interest in property and that gives the holder the right to acquire formal legal title) or claimed on equitable grounds, such as the interest held by a trust beneficiary". The equitable interest is a right in equity that may be protected by an equitable remedy, but any remedy would require a court case to resolve any disputes.
During a real estate transaction, the seller still holds title, but a buyer has a legal interest in a property, and equitable interest is basically the name given to this legal interest before ownership is passed. While being named on a deed as the owner and holding legal title is the true and enforceable ownership of a property, if you have given someone else equitable title by way of entering into a contract of sale, your ownership and rightsmay be restricted.
Equitable title establishes a person’s financial interest in a property. Most commonly, this is used when an investor has put a property under contract, and begins to market the property, either for lease or for sale, before taking legal title. Investors who do this regularly are referred to as wholesalers.
Wholesalers typically sell a property after they execute a contract of sale, and the contract will stipulate that the sale is contingent on the wholesaler’s final purchase of the property. Or, if written where a purchase assignment is allowed, the investor can assign his original purchase contract with the seller to the end-buyer, and the end-buyer actually closes by taking over the wholesaler’s responsibility for the original contract.
If you are the buyer of an investment property that is being sold under equitable interest or through assignment prior to an actual transfer of legal title, there should be full disclosure to all parties explaining that the seller does not have legal title.
Lauren Bunting is an Associate Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
Lauren Bunting is a Broker with Keller Williams Realty of Delmarva in Ocean City, Maryland.
