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Three Things You Need to Know About Equitable Title

Posted on Wed, Jan 04, 2017 @ 07:30 AM

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Equitable title and legal title are often conflated, erroneously. This is understandable considering these two concepts cover very closely related things, but equitable title functions differently than legal title and entails certain considerations. It’s vital to understand the differences between equitable title and legal title, especially if one is dealing with bankruptcy filings.

Definitions of Legal and Equitable Title

Legal title is the actual ownership of a piece of property or an asset. More often than not, legal title is determined based on the documented name of the owner and is a matter of public record. For example, the deed to the property would list the homeowner’s legal title over a home.

Equitable title refers to the person or party who has the most consistent control over the property and is typically responsible for financing the property. Following the above example of home ownership, a homeowner with legal title to a home may rent a property to another person, and that person would be responsible for paying rent for the property and its basic upkeep. The renter would essentially have equitable title, but that does not mean the renter has any measure of legal title to the property.

Equitable Title and Bankruptcy

When people file for bankruptcy, they must list and fully disclose all owned assets on their petitions for bankruptcy. A debtor filing for bankruptcy may be able to claim exemption on some property, but only if the debtor has legal title. For example, a shared bank account between two relatives may mean that both relatives have legal title. However, if only one of them was making regular deposits and using the account, that person has equitable title. If the other person, who only had legal title, files for bankruptcy, then the account would most likely be exempt from bankruptcy filings since the debtor didn’t have equitable title.

Just because a legal title is shared, however, does not mean the asset or property in the title must be surrendered in bankruptcy proceedings. Equitable title matters more in these cases, so if there is any room for uncertainty, it is wise to consult a bankruptcy attorney.

Equitable Title and Property Transfer

Legal title also covers an individual’s rights to transfer property to another owner legally. For example, a trustee would have legal title over the property and assets listed in the trust; therefore, the trustee has legal title over that property and may transfer it. However, in trustee situations such as this, the terms of the trust typically bind the trustee and he or she may transfer it only as the trust allows. In other cases, the trust may establish legal title for the trustee but require the trustee to defend and maintain the property until disbursing it to a beneficiary of the trust.

Equitable title does not entitle one to transfer or sell property. Even if a person has equitable title over an asset, he or she may not sell the asset without the legal consent of the party with legal title over the property. When disputes arise over equitable and legal title, legal action is usually necessary to reach a resolution.

If there is any question over the legality of the transfer of property, it’s vital to ascertain the legal title and equitable title correctly for everyone involved. A person with equitable title is usually not permitted to sell or otherwise transfer the property without permission of the legal titleholder. In addition, one usually files legal titles officially with local municipalities, which maintain the chain of legal title for properties. Should you encounter any similar circumstances, consulting with a reliable bankruptcy attorney is a wise choice.

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