What is the difference between legal title and equitable title?

Underwood-Blog-Images-4-1-300x300The significance of the differences between legal and equitable title is an outright confusing topic, requiring some knowledge of constructive trusts, beneficial interests, and seller’s liens. That said, the concept can be made digestible by boiling it down to its essential elements. When done, this simplification reveals how often we encounter both types of titles in common real estate transactions.

At its core, the difference between these titles contains significance only insofar as there are multiple interested parties in the same property. When this is the case, the law creates a legal fiction of sorts, assigning the beneficial use of the property to the “equitable” titleholder and the legal power over the property to the “legal” titleholder.

The explanation is, in reality, much more complex, but the attorneys at Underwood Law are more than familiar with the ins and outs of title disputes and are here to help navigate you through your real estate lawsuit.

What is a legal title?

Generally, the phrase “legal title” evokes some idea of ordinary record title to the property. If “Shawn” holds record title to a piece of property, he is its owner and can do with it as he pleases. His ownership is recognized in the county through a deed recorded when he purchased the property.

What’s more is that because of Shawn’s title, he has the rights of possession, alienability, and the ability to devise and descend the property to whomever he chooses. These rights can be thought of as Shawn’s “beneficial interest” in the property. Shawn benefits because of the existence of these rights. 

In the legal context, however, “legal title” refers only to the deed insofar as it is some written instrument recognized in the courts and government as valid. Put differently, “legal title has been defined as ‘one cognizable or enforceable in a court of law, or one which is complete and perfect… but which carries no beneficial interest in the property, another person being equitably entitled thereto.” (Parkmerced Co. v. City (1983) 149 Cal.App.3d 1091, 1094.)

Thus, legal title, as defined under the law, really only has meaning insofar as there exists an equitable title holder to the same property. In Shawn’s case above, there really isn’t a difference between legal and equitable title because he owns both. This is a presumption the law recognizes outright. Evidence Code section 662 states, “the owner of legal title to property is presumed to be the owner of the full beneficial title.”

What is an Equitable title?

The equitable title is related to legal title in that it embodies the beneficial use of the property associated with the legal title. It is everything up to but not including the “bare legal title” recognized in the courts.

Most commonly, the equitable title is associated with real estate purchase agreements, and they are a good illustration of equitable title at play.

For instance, a purchaser of real property in California under a land sales contract is considered an “equitable owner” of the property. (Alhambra Redevelopment Agency v. Transamerica Financial Services (212 Cal.App.3d 1370, 1375.) By execution of this sales contract, the purchaser has all the rights associated with the property and is subject to divestment only for breach of contract (e.g., the purchaser refuses to pay the full price to the seller). (Id.)

During this transaction, the seller is the “legal title” holder. The seller is nothing more than a trustee (in the eyes of the law), holding the land in the trust for the purchaser as a security for the payment of the full sales price for the land. (Hunt v. Inner Harbor Land Co. (1923) 61 Cal.App. 271, 273.) Once the full price is paid, the seller delivers legal title to the purchaser so that the purchaser has both legal and equitable title to the property.

How do Legal and Equitable Titles operate in Quiet title Actions?

In the courts, legal and equitable title are concepts that are almost exclusively encountered with quiet title actions.

A quiet title action is a special type of lawsuit a property owner files to eliminate, establish, and “quiet” any other claims on the same property by other individuals. A quiet title claim is appropriate to establish an interest in real property as against all existing adverse claims or clouds on title.” (Paterra v. Hansen (2021) 64 Cal.App.5th 507, 532.)

Naturally, situations arise where equitable title holders file quiet title claims against legal title holders on the same property. For example, a buyer of property, upon being confronted with the news that there were secretly other individuals on the property’s title, will typically file a quiet title suit asserting their equitable title as superior to all supposed legal titles.

This does not always work. And in fact, as a general rule, the holder of an equitable title cannot maintain a quiet title action against the holder of a legal title. (Liberty National Enterprises, L.P. v. Chicago Title Ins. Co. (2013) 217 Cal.App.4th 62, 81.) Recall that the law assumes, as an evidentiary matter, that a legal title holder is also the owner of the full beneficial title to the property. (Evid. Code § 662.)

There is, however, an exception when legal title has been acquired through fraud. In these instances, the legal title holder makes a series of fraudulent promises to the equitable owner’s detriment. The court’s response is thus to create a “constructive trust,” allowing the equitable title owner to acquire full legal title as a matter of equity.

How can the Attorneys at Underwood Law Assist You?

Title disputes are a property owner’s worst nightmare. In addition to being expensive, they can be emotionally draining. When confronted with the prospect of losing one’s property, potential litigants may well be at a loss for what to do. In these instances, the right attorney can make all the difference, especially one skilled in the complexities of constructive trusts and quiet title actions.

As each case is unique, property owners would be well-served to seek such an experienced counsel familiar with this area of law. At Underwood Law, our knowledgeable attorneys are here to help. If you are concerned about whether you can quiet title to your property, wondering whether your title is legal or equitable, or if you just have questions, please do not hesitate to contact our office.

 

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