assignment of equitable interest

Equitable Assignment: Everything You Need to Know

An equitable assignment is one that does not fulfill the statutory criteria for a legal assignment, but is binding and upheld by the courts in the interest of equability, justice, and fairness. 3 min read updated on February 01, 2023

An equitable assignment is one that does not fulfill the statutory criteria for a legal assignment, but is binding and upheld by the courts in the interest of equability, justice, and fairness.

Equitable Assignment

An equitable assignment may not appear to be self-evident by the law's standard, but it presents the assignee with a title that is protected and recognized in equity. It's based on the essence of a declaration of trust; specifically, essential fairness and natural justice. As long as there is valuable consideration involved, it does not matter if a formal agreement is signed. There needs to be some sort of intent displayed from one party to assign and the other party to receive.

The evaluation of a righteous equitable assignment is completed by determining if a debtor would rationally pay the debt to another party alleging to be the assignee. Equitable assignments can be created by:

• The assignor informing the assignee that they transferred a right to them
• The assignor instructing the other party to release their obligation from the assignee and place it instead on the assignor

The only part of an agreement that can be assigned is the benefit. Generally speaking, there is no prerequisite for the written notice to be received or given. The significant characteristic that separates an equitable assignment from a legal assignment is that most of the time, an equitable assignee may not take action against a third party. Instead, it must rely on the guidelines governing equitable assignments. In other words, the equitable assignee must team up with the assignor to take action.

The Doctrine of Equitable Assignment in Wisconsin

In Dow Family LLC v. PHH Mortgage Corp ., the Wisconsin Supreme Court issued in favor of the doctrine of equitable assignment. The case was similar to many other foreclosure cases, except this one came with a twist. Essentially, Dow Family LLC purchased a property and the property owner insisted the mortgage on the property had been paid off. However, in actuality, it wasn't. 

Prior to the sale, the mortgage on the property was with PHH Mortgage Corp. When PHH went to foreclose on the mortgage, Dow Family LLC contested it. There was one specific rebuttal that caught the attention of the Wisconsin Supreme Court. The official mortgage on record was with MERS, an appointee for the original lender, U.S. Bank.

Dow argued that PHH couldn't foreclose on the property because the true owner was MERS. Essentially, Dow was stating that the mortgage was never assigned to PHH. Based on this argument, PHH utilized the doctrine of equitable assignment.

Based on a case from 1859, Croft v. Bunster, the court determined that the security for a note is equitably assigned when the note is assigned without a need for an independent, written assignment. Additionally, Dow contended that the statute of frauds prohibits the utilization of the doctrine, mainly because it claimed every assignment on a property must be formally recorded.

During the case, Dow argued that the MERS system, which stored the data regarding the mortgage, was fundamentally flawed. According to the court, the statute of frauds was satisfied because the equitable assignment was in accordance with the operation of law. Most importantly, the court avoided all consideration regarding the MERS system, concluding it was not significant in their decision. 

The outcome was a major win for lenders, as they were relying on the doctrine specifically for these types of circumstances.

Most experts agree that this outcome makes sense in the current mortgage-lending environment. This is due to the fact that it is still quite common for mortgages to be bundled up into mortgage-backed securities and sold on the secondary market.

Many economists claim that by not requiring mortgages to be recorded each time a transfer is completed, the loans are more easily marketed to investors. Additionally, debtors know who their current mortgage company is because the new lender must always notify the current borrower in order to receive payment. It was determined that recording and documenting the mortgage merely provides a signal to the rest of the world that the property owner secures a debt.

If you need help with an equitable assignment, you can  post your job  on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

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What is Equitable Interest? Common Equitable Interest Examples

What is equitable interest.

An equitable interest is defined as “an interest held by virtue of an equitable title (a title that denotes a beneficial interest in the property and allows the possessor the right to obtain formal legal ownership) or claimed on equitable grounds, such as a trust beneficiary’s interest.”

A right in equity that can be protected by an equitable remedy is known as an equitable interest.

Only in systems affected by the common law (connotation 2) heritage, such as New Zealand, England, Canada, Australia, and the United States, can this idea exist.

Common Equitable Interest Examples

Equitable rights to a property do not confer the same rights as legal ownership to the property. Courts, on the other hand, recognize these interests because ‘it is right and fair to do so.’

Equitable title does not transmit legal ownership of the property; rather, it grants the individual or entity the right to use and enjoy the property. These are some common instances of this type of interest:

• The interest of a beneficiary in a fixed trust
• The interest of a partner in the partnership
• Proprietary interests that are common law interests’ equivalents
• Security interests that are equitable
• Land rights that are equitable

Mary and Gustav formed a partnership and bought an investment property. Although Mary contributed 50% of the purchase price, the legal title is in Gustav’s name.

Although Mary is not the legal owner of the property, she has an enforceable equitable interest in it.

What exactly is Equitable tittle?

Equitable title refers to the ability to use and enjoy the property but is not synonymous with “real ownership.”

In court, anyone with equitable ownership could not claim to be the legal owner or possession of the property.

This necessitates the acquisition of a legal title. Having equitable title, on the other hand, gives the person greater consistent authority over the property.

Because someone with equitable title has the rights to “benefit from” and “enjoy” the property, this often comes with the obligation to finance it.

Furthermore, equitable title grants the holder the right to gain formal legal ownership as well as access to the property.

When purchasing any property, it is critical to get both equitable and legal ownership. This includes the right to eventual full ownership and property interest.

Equitable title establishes a person’s financial interest in a piece of property. This is why a property investor can hold equitable title and list a property even if legal title does not exist.

However, they are unable to sell the property.

Legal Title

Before we can understand what, an equitable interest is, we must first understand why it can arise. Equitable interests arise when there is an interest in a property but the party with the interest does not have legal title.

Legal title is the genuine and enforceable ownership of a property. Except in the case of an equitable interest, this cannot be easily overridden.

A legal title entails numerous responsibilities, such as the upkeep, use, and ownership of real estate. A common example of this is the Torrens title system of land ownership, in which a legal interest is registered on the title of the property.

Although this type of ownership appears to be absolute, there are some circumstances in which it can be challenged. This is known as an ‘equitable interest.’

Equitable interest vs legal interest

Despite the fact that they both represent a sense of ownership over an asset, legal interest and equitable interest are not the same thing.

When a person has legal interest in an asset, he has ownership and can legally enforce his rights over the asset. When a person has equitable interest in an asset, he or she can use it without legally owning it.

The following example demonstrates the distinctions between equitable and legal interest.

Amy has agreed to buy a house from Daniel under a contract that states that Amy (the buyer) will pay the price of the house in installments and that once the price is paid in full, Daniel (the seller) will transfer the deed to Amy.

In this scenario, Amy has an equitable interest in the house because she can live in it and enjoy it but does not have legal title to it. Daniel will retain legal ownership of the house until Amy pays the balance in full, at which point legal ownership will be transferred to Amy.

Amy can benefit if the property’s value has increased between the time the agreement was drafted and the time the last installment was made.

However, if the property’s value falls, she will suffer a loss.

The equitable interest differs from the legal interest in two important ways:

A legal title can be conveyed from one person or entity to another. In this case, both parties must sign documents and pay fees in order to complete the transfer. This is a relatively quick and simple process.

A legal title cannot be challenged by the law. If a property owner does not prove their ownership, then they have no legal title to the property at all. This means that anyone can take possession of the property.

How Equitable Interest impacts who can sell the property

People frequently come into contact with equitable interest because someone is selling a property that they do not own.

These listings will most likely be on a local listing website rather than the MLS, but the issue of ownership remains.

It is frequently true that only the owner of a property can sell it unless you have an equitable stake in it.

In these circumstances, the seller’s equitable interest will be derived from one of several sources:

• Purchase and sell agreement
• A contract with an option
• A deed contracts
• A lease option agreement
• A letter of permission for a short sale

When you come across someone listing a property that they do not legally own, you are most likely dealing with a wholesaler.

A property is normally sold by a wholesaler once a buy and sale agreement is signed.

Instead of purchasing the property outright, they can become the equitable interest holder and advertise it.

When a prospective buyer agrees to sign a purchase and sale agreement, the investor signs it as the seller.

The contract will include a clause stating that the sale is conditional on his purchase of the property.

The investor can sometimes assign his initial purchase contract with the seller to the investor’s end-buyer, and the end-buyer really closes by taking over the investor’s duty for the original contract.

The property will eventually be purchased by the end-user, and the distributor will earn an assignment fee. Remember that, unlike realtors, investors do not receive a commission.

Rather, they work to find buyers through marketing efforts, and having equitable interest aids them in this endeavor.

Purchasing properties, taking a financial risk, and selling them to buyers pays off in the long run. Throughout this process, many investors also rehab and transform neighborhoods.

Situations where Equitable and Legal tittle interact

Ownership rules vary depending on where you live. According to the deed, the property seller is not necessarily the legal holder of the piece of real land. The law may permit two parties to have different equitable and legal titles.

A land contract is one example of a situation in which legal and equitable title is shared. In this situation, the seller gives finance to the buyer in the form of a payment plan.

Instead of recording a deed transferring title to the buyer, the seller will execute a contract with the buyer stating the payment terms and the rights of both parties.

For the length of the contract, the seller will retain legal title, but the buyer will have equitable title.

That is, the buyer has the right to acquire the property as well as the obligation to maintain it. At the end of the loan period, the deed will transfer full title to the buyer, giving them legal and equitable title.

Another prominent instance in which legal and equitable title intersect is while dealing with a trust.

A trust is a legal structure in which one party (the trustee) holds property on behalf of another party (the beneficiary). In this situation, an individual will purchase a home and then register a deed giving legal title to their trust.

The trust documents, which specify the identification of the trustee and beneficiary, govern the terms of the trust. Typically, the property owner will name themselves as the beneficiary, but they may also name a child or another family member.

They may also choose to serve as trustees themselves or appoint a third party.

When the property is transferred to the trust, the trustee becomes the legal owner and has the right to sell it (subject to the terms of the trust) as well as the obligation to maintain it and defend it in court if necessary.

The beneficiary, on the other hand, has a beneficial interest in the trust (i.e., equitable title), which includes rights to the profits and income generated by the trust’s property.

Trusts are used because transferring legal title upon the death of a trustee is easier with a trust than when legal title is held by an individual. This is because the probate process can be avoided when trust is involved.

Types of Equitable Interests

Latec Investments Ltd v Hotel Terrigal Pty Ltd indicates that there are three types of equitable interests in New South Wales:

• Equitable interest- An equitable interest is a right in property that does not go through the legal title process. This is similar to how a leasehold operates, with the exception of conveyance.
• Mere equity- A mere equity is a way to acquire a property while avoiding the cost of conveyance. This is often done by entering into a contract that conveys an interest in land but which does not grant any legal title.
• Personal equity- This is a possessory interest in property that is not based on legal title. This can include an equitable interest or a mere equity.

For example, pure equity may develop when one party has been unfairly harmed as a result of the outrageous behavior of another.

According to the law established in Lysaght v Edwards, a valid contract for sale confers an equitable interest on the purchaser of the land. In Walsh v Lonsdale, it was also stated that “justice looks on as done that which ought to be done.”

A contract that does not meet the requirements of a deed as required by section 52 of the Law of Property Act of 1925 may be specifically enforced to convey the equitable interest to the new purchaser.

This rule has had a significant impact because it allows interests that were not conveyed by a deed to still be binding on future purchasers under the doctrine of constructive notice.

However, the Law of Property (Miscellaneous Provisions) Act 1989 s.2, which requires all contracts for the sale of land (which could be specifically enforceable) to be in writing, contain all the conditions of the agreement, and be signed by both parties, has lessened the impact of this regulation.

Contracts that are not in writing and signed by both parties cannot be specifically enforced and, as a result, do not create or transfer an equitable interest inland.

Equitable interest in partnership

In summary, the High Court confirms that a partner’s interest in partnership property prior to the dissolution of the partnership is an equitable interest under a unique trust, as opposed to a fixed trust.

What is Equitable interest?

Equitable interest deals with rights that may exist in a property that are not based on legal title.

What is a mere equity?

A mere equity is similar to an equitable interest, except that it has no connection to a legal right.

Generally, an individual will be able to acquire a property and then register a deed giving themselves legal title. Or, they will enter into another contract that conveys an interest in the land but does not convey any legal title.

Pure equity exists when one party has been unfairly harmed as a result of another’s outrageous or malicious behavior.

When do you get a personal equity?

A personal equity is a possessory interest in property that does not have any basis in legal title. This can include a mere equity or an equitable interest.

How do you get equitable interest?

It is a general term that refers to an interest established on fairness principles rather than a formal legal assignment of ownership. This form of interest is usually superseded by legal ownership. The Court is the sole means to have an equitable interest enforced.

What is a reversionary estate?

In the context of real estate or wills and estates, a reversionary interest is a reservation created in a real estate conveyance that the property will revert back to the original owner upon the occurrence of a certain event.

What are the two elements of an equitable interest?

An equitable interest is created when one party makes a deal with another to transfer property on certain terms. This agreement involves two major components:

• The Nature of the Property Interest; and
• The Terms of the Agreement.

What is the difference between equitable interest and legal interest?

Equitable interest is an interest in a property that is not based upon legal title.

Legal interest, on the other hand, refers to an individual’s claim to a property by virtue of their legal ownership of it.

For example, a vendor may have legal title over a piece of land, but they may also have an equitable interest in it as well.

A court order stating that the specific piece of land should be conveyed to one person is considered a conveyance order.

What is an equitable interest example?

Equitable interest is a broad phrase that refers to an interest that is established via principles of justice rather than a legal assignment of ownership. A trust beneficiary’s equitable stake is one example.

What are equitable rights and interests?

An equitable right is a legal right guaranteed by equity, as opposed to a legal right derived from a legal source. An example of an equitable right can be found in Land law, where a beneficial interest, i.e., vested interests in an estate that are protected by equity, is mentioned.

What is equitable title?

Equitable title is a type of ownership that does not necessarily involve the legal ownership of property, but rather the possessor of the property has been granted some sort of rights to it.

Can equitable interests be registered?

HM Land Registry only registers legal estates, and the proprietor is listed as the owner of a legal estate. The register documents the legal estate in the property, not the underlying ownership (the ‘equitable’ or ‘beneficial’ interests).

What is an equitable proprietary interest?

An equitable proprietary interest is a form of personal right in land that is not based on legal title.

What is an equitable remuneration right?

Equitable remuneration rights are a type of right in land that are not based on legal title, but rather upon the holder of the interest having a beneficial interest in the property.

What is an affidavit of equitable interest?

An affidavit of equitable interest is a sworn statement that contains the details of any equitable interest that you may have acquired in a property.

The affidavit must be signed by the individual who declares that they have acquired an interest in it and also attests to their knowledge about its existence. The document must be registered with a legal or official body, such as the Land Registry Office, before it becomes effective.

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Equitable Interest: 6 Things (2024) You Ought To Know

Equitable interest is a concept that is part of the everyday life of a real estate professional.

Whether you’re buying and selling properties or you’re a real estate agent, you’ll want to have a deep understanding of this idea.

Below, we’ll discuss not only equitable interest but also the concepts you must understand along with it like legal title and equitable title.

Let’s get started.

1. What is equitable interest?

According to Lawpath , equitable interest “arises when there is an interest in the property, but no legal title exists.”

It’s a broad term that covers an interest established through principles of fairness, rather than the true legal assignment of ownership.

This type of interest can typically be overridden by legal ownership .

The only way to have equitable interest enforced is by the Court.

Let’s look more closely at this.

During the buyer-seller transaction, the seller still holds the title (which is key to legal ownership), but the buyer has a legal interest in the property.

The name given to this legal interest before the ownership is passed between them via the title is called equitable interest.

This is the most common way that we see the concept.

2. What is legal title?

Legal title is the true and enforceable ownership of a property .

It cannot be easily overridden.

A legal title carries with it the many responsibilities of maintaining, using, and controlling a piece of property.

But it also comes with many rights.

These rights may include (but not always):

If your name appears on the deed, then you have legal title of the property.

This is the “apparent” ownership or ownership that is documented on paper.

However, your ownership of the property is not complete if someone else has equitable title.

Equitable title has the ability to restrict some of the ways that you can use and enjoy the property.

Read the next section for more information on equitable title.

3. What is equitable title?

Equitable title refers to the ability to use and enjoy the property, but is not “true ownership.”

Anyone with equitable ownership could not argue that he or she was the legal owner or possessor of the property in court.

In order to do this, a legal title is required.

Still, having equitable title does grant the person more consistent control over the property.

Because someone with equitable title has the rights of “benefiting from” and “enjoying” the property, this often comes with the responsibility of financing it.

Additionally, equitable title gives the holder the right to acquire formal legal title and the right to access the property.

When purchasing any property, it is important to gain equitable title as well as legal title.

This comes with the right to obtain full ownership and property interest in the future.

Equitable title establishes the person’s financial interest in the property.

This is why a property investor can hold equitable title and list a property without having legal title.

However, they cannot actually sell the property.

To understand this, keep reading.

We’ll discuss common situations where legal and equitable title interact.

4. What are situations when legal and equitable title interact?

Depending on where you live, ownership laws are not always black and white.

The property seller may not always be the legal possessor of the piece of real estate according to the deed.

The law may allow the equitable title and the legal title to belong to two separate parties .

One situation in which legal and equitable title becomes divided is with a land contract .

In this case, the seller provides financing for the buyer through a payment plan.

Instead of recording a deed transferring title to the buyer, the seller will execute a contract with the buyer outlining the payment terms and the rights of both parties.

For the duration of the contract, the seller will retain legal title while the buyer has equitable title .

That is the buyer has the right to possess the property and the duty to maintain it.

At the end of the loan term, the deed will transfer full title to the buyer so that they will hold legal and equitable title.

Another common scenario where legal and equitable title overlap is when dealing with a trust .

A trust is a legal arrangement in which one party (the trustee) holds property on behalf of another party (the beneficiary).

In this scenario, an individual will acquire a property and then record a deed transferring legal title of the property to their trust.

The terms of the trust are dictated by the trust documents, which will delineate the identity of the trustee and beneficiary.

Often, the property owner will assign themselves as the beneficiary, but sometimes they may list a child or other family member.

They may also choose to serve as trustee themselves or appoint a third-party.

When the transfer to the trust occurs, the trustee becomes the legal owner and has the right to sell the property (subject to terms of the trust) as well as the obligation to maintain the property and defend it in court if necessary.

On the other hand, the beneficiary has beneficial interest in the trust (i.e. equitable title), including rights to the profits and income coming from the property held by the trust.

Trusts are used because transferring legal title upon the passing of a trustee is easier with a trust than when legal title is held by an individual.

This is because the probate process can be skipped when a trust is involved.

5. How does equitable interest impact who can sell the property?

Often, people come into contact with equitable interest because someone is listing a property they don’t own.

Actually, these listings will likely be on a local listing website rather than the MLS, but the question of ownership remains.

It’s often true that only the owner of a property can sell it…unless, that is, you have equitable interest in a property.

In these cases, the seller’s equitable interest will come from one of a variety of sources:

When you find someone listing a property they don’t legally own, they are most likely a wholesaler.

Wholesalers often sell a property after they execute a purchase and sale agreement.

This allows them to become the equitable interest holder and advertise the property instead of buying it outright.

When the investor has a prospective buyer who agrees to sign a purchase and sale agreement, he himself signs it as the seller .

The contract will contain a clause that stipulates that the sale is contingent on his purchase of the property.

Sometimes, the investor can assign his original purchase contract with the seller to the investor’s end-buyer, and the end-buyer actually closes by taking over the investor’s responsibility for the original contract.

The end-buyer will ultimately purchase the property and the wholesaler will earn an assignment fee.

Keep in mind that, unlike realtors, investors do not earn a commission.

Rather, they work to find buyers through marketing, and having equitable interest helps them to do so.

Buying properties, taking a financial risk, and selling them to buyers pays off in the end.

Many investors also rehab homes throughout this process as well.

6. I’m confused…what is the investor “selling” in the last example?

In the last section, the investor is selling his contractual interest in the property to a second buyer.

Even though the parties haven’t closed yet, the investor is able to sell his equitable interest, and this is why he’s able to list the property now when he wasn’t before.

However, not all states like when investors (or anyone for that matter) do this .

For example, the Texas Real Estate Commission has recently adopted an “equitable interest” rule that’s intended to keep unlicensed people from practicing real estate brokerage.

This rule does not mean that holders of equitable interest cannot sell their interest in the property, but they must be very careful to accurately disclose what is being sold.

Here are some general guidelines:

You must make sure that you disclose to any potential buyers that your client is selling an option or assigning an interest in a contract.

They must know that they do not have legal title to the property.

This disclosure can be either verbal or written and must be made anytime that you market the property on your client’s behalf.

Any potential buyers and your client must be made aware of this.

Make sure that you disclose to your client that the original buyer is selling an option or assigning an interest in a contract.

This means that the original buyer does not have the legal title to the property.

Again, this disclosure can be verbal or written, and all parties must be aware of what each party is buying and selling.

Then you must disclose to potential buyers that you are selling an option or assigning an interest in a contract (either verbally or in writing).

Every time you market the property, this disclosure must be made.

This also applies in any situation when you are acting on behalf of a spouse, parent, child, business entity that you own more than 10%, or a trust in which you are the trustee or your spouse, parent, or child is a beneficiary.

You must disclose the nature of the interest.

Again, this must be in writing or verbally to any potential buyers.

As an unlicensed buyer, you must make this disclosure every time you market a property.

Final thoughts

While the concepts of equitable title, legal title, and equitable interest may seem straightforward on the surface, studying the critical details can allow you to make the right decisions when it comes to purchasing a property.

Understanding the distinction between legal and equitable title can help you make an informed purchase.

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Disclaimer: we are not lawyers, accountants or financial advisors and the information in this article is for informational purposes only. This article is based on our own research and experience and we do our best to keep it accurate and up-to-date, but it may contain errors. Please be sure to consult a legal or financial professional before making any investment decisions.

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6 thoughts on “Equitable Interest: 6 Things (2024) You Ought To Know”

I purchased a partially renovated home at foreclosure for $500,000. A judge ruled two other people, who had done work on the property, could have an “equitable interest” if they applied for it. Person #1 did $100,000 of work; person #2 did $5000 of work. I would like to finish renovating the property to maximize my financial gain. What happens if I do $100,000 of additional renovation work, and then sell the house for $700,000. • Is there any financial incentive for me to do additional renovation work? • How can people with an “equitable interest” recover their money? • Do two people with equitable interests have priority, one over another? • What if person #2 files before person #1? • Is an equitable interest recorded with the county recorder? • Would a buyer have clear title, unencumbered by any equity interest?

Hello Ran, my apologies, but since I am not a lawyer, I would recommend speaking with a local real estate attorney.

I was selling a property and had a signed purchase agreement. Buyer #1 had the property for sale by their company June 16th but didn’t file for equitable interest until June 23rd. Then attempted to violate their own contract by canceling the agreement outside the contingency timeframe clearly stated on the agreement. After agreeing to cancel the sale and move on, buyer #1 fought signing the agreement cancelation form so I could sell to someone else. He also never delivered the earnest money to the title company per our agreement signed a month prior, then finally delivered it. Then, when I was days from closing with buyer #2, we found out buyer 1 never removed their equitable interest, which would prevent me from selling the property. Finally they did sign a quit claim deed so I could proceed with the closing. I’m glad to be done with them, but am still considering whether to take buyer 1 to small claims court. 🤔 Any thoughts?

Hello Dawn, I’m so sorry to hear about your situation. It sounds like a truly horrible experience. Unfortunately, this is really a question for a lawyer. Have you spoken with one yet?

Not yet…Ive been quoted $350/hr just for consultation.

Yes, it can be expensive, but some lawyers do offer a free 30 minute-consultation.

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Equitable Interest Definition

Title , Legal, Terminology

Table of Contents

• What Is Equitable Interest?
• Legal Interest vs. Equitable Interest
• How to Obtain (and Prove) Equitable Interest
• Examples of Equitable Interest
• Can a Person Transfer Equitable Interest?

REtipster does not provide legal advice. The information in this article can be impacted by many unique variables. Always consult with a qualified legal professional before taking action.

A property owner is an individual who holds the title to an asset (such as real property), therefore possessing legal interest on it. An owner can also sell, transfer, or use the property as they wish[1]. However, it also comes with certain responsibilities, such as the property’s care and maintenance.

By contrast, an individual with an equitable interest in a property holds no title to the asset yet enjoys the privileges of its ownership. An example of equitable interest is the beneficiary’s interest in a trust or a silent partner’s interest in a partnership. Meanwhile, in a real estate transaction, the seller holds legal interest; the buyer, equitable interest[2].

Equitable interest can also represent a person’s financial interest in the property. This allows the person to list the property or to market it for sale.

BY THE NUMBERS: Almost 65% of families in the U.S. hold the legal title to their primary residence. Source: Federal Reserve’s Survey of Consumer Finances

Courts of law recognize and, at times, enforce equitable interest, although it may require the legal owner’s express consent. It may be established in writing and usually happens when the buyer and seller enter into a purchase and sale agreement[3]. As soon as the buyer executes a purchase and sale agreement and any monetary consideration has been contributed by the buyer, the buyer obtains a legitimate, equitable interest in the property even if they do not have the legal title yet.

All parties need to formalize the extent of their interests in an asset or property. A contract of sale is an agreement that binds the buyer and the seller and establishes the buyer’s equitable interest in a property.

A declaration of trust may prove equitable interest and shows that an individual has rights over a property. In the agreement, the buyer agrees to perform duties and responsibilities to get equitable interest[4].

To claim an equitable interest in a property, a person may also need to show that they make payments on the property. This may involve direct contributions to the purchase price of the property or payments made for renovations[5]. In some cases, sweat equity may go toward equitable interest as well.

Equitable interest may come in the form of purchase and sale contracts, mortgage contracts, option contracts, short sale approval letters, deed contracts, lease option contracts, among others. Here are some examples of equitable interest.

The beneficiary of a trust is among the common examples of a person holding equitable interest. While the trustee holds the title to the asset, the beneficiary may claim equitable interest and legal ownership of the trust in certain ways. Such conditions include instances when the trustee misuses the asset or violates the terms of the trust[6].

Lease Option

A person who enters into a lease option arrangement may also have equitable interest in the property. The tenant may rent the property for a period, after which they have the option to purchase the property[7].

Marital Investments

Couples who purchase an investment property have equitable interest in the asset. One may pay 50% of the purchase price while the other holds the legal title to the property. While the one who paid 50% is not the legal owner of the property, they still have an equitable interest in the property[8].

Real Estate Transactions

Equitable interest applies in buyer-seller transactions where the seller finances the buyer’s purchase. The buyer agrees to purchase a property from a seller and will pay the price of the house in installments. The buyer has equitable interest and may use and enjoy the property even without legal ownership[9].

The seller holds the legal title until the buyer pays the balance in full. Once the buyer completes the payments, they may claim legal ownership of the property.

In real estate, a common way to transfer equitable interest is by wholesaling . For instance. an investor may enter into a purchase and sale agreement with a seller, which grants them equitable interest over the property. However, instead of buying the property outright, they then instead advertise the property to an actual end buyer, assigning the equitable interest in them to the end buyer.

The investor does this by assigning or giving the equitable interest through a deed of assignment. In this case, the buyer becomes an assignor, and the person receiving the equitable interest becomes the assignee[10]. The assignee becomes responsible for fulfilling the terms of the purchase contract, therefore buying the property during closing. In this transaction, the investor acts as a middleman who earns a “finder’s fee.”

The deed of assignment contains details of the transaction between the assignor and the assignee. These include information on who will cover the costs for drafting the deed, what is being assigned, how to sell the property, and the signatures of both parties.

Note that not all holders of equitable interest can transfer it this way, nor is it as easy. For example, a beneficiary of a trust may give or sell their equitable interest to another person but must do so in writing through a deed of assignment.

• A person with an equitable interest in a property may use and enjoy it, even obtain legal title to it eventually, even if they do not hold the legal title to it.
• The most common example of equitable interest is the one held by a trust beneficiary, but it may also come in other forms, such as by an equitable interest held by partners, a seller-financed property deal, or a marital investment.
• A buyer with equitable interest in a property may give or assign that interest to another person through a deed of assignment. This procedure is known as real estate wholesaling.
• Assets America. (n.d.) What Is Property Interest? Retrieved from https://assetsamerica.com/property-interest/
• Gokce Capital. (n.d.) Equitable Interest: 6 Things (2021) You Ought To Know. Retrieved from https://gokcecapital.com/equitable-interest/
• Legal Information Institute. (n.d.) Sec. 535.6 – Equitable Interests in Real Property . Cornell Law School. Retrieved from https://www.law.cornell.edu/regulations/texas/22-Tex-Admin-Code-535-6
• Corporate Finance Institute. (n.d.) What is a Declaration of Trust? Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/declaration-of-trust/
• Kagan, J. (2020.) Beneficial Interest . Investopedia. Retrieved from https://www.investopedia.com/terms/b/beneficial-interest.asp
• US Legal. (n.d.) Equitable Interest Law and Legal Definition . Retrieved from https://definitions.uslegal.com/e/equitable-interest/
• Rubel, M. (2017.) Lease Option and Equitable Interest . Huffington Post. Retrieved from https://www.huffpost.com/entry/lease-option-and-equitabl_b_11730896
• Braverman, B. How should you title your home? . Bankrate. Retrieved from https://www.bankrate.com/real-estate/how-should-you-title-your-home/
• Ruth, P. (2021.) Wholesaling Real Estate: What It Is, What It Isn’t, and What Needs to be Disclosed. Stock and Leader. Retrieved from https://www.stockandleader.com/uncategorized/wholesaling-real-estate-what-it-is-what-it-isnt-and-what-needs-to-be-disclosed
• Law Offices of Stimmel, Stimmel & Roeser. (n.d.) Assignments: The Basic Law. Retrieved from https://www.stimmel-law.com/en/articles/assignments-basic-law

Related terms

Earnest money deposit (emd), seller financing.

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What Is an Equitable Assignment?

An equitable assignment is a transfer of future interest that doesn’t fully meet legal standards, but will still be honored by courts. This is an example of a situation covered by equity, or fairness, rather than specific legal doctrine. Courts will enforce such agreements when they are not covered by existing laws, as long as they appear reasonable, fair, and without coercion. The standards for an equitable assignment to pass court scrutiny can depend on the region and the situation.

In such assignments, people can reassign future income in several different ways. One option can be to transfer interest, like part of a trust, to another person; the trust is guaranteed income, but the assignor waives the right to it, allowing the assignee to benefit from it. Another way to perform an equitable assignment is to have third parties transfer anticipated payments to the assignee. In all cases, the transfer involves future income or benefits, not current ones.

Expectations do not count as an equitable assignment. If a child believes she will inherit her father’s house, for example, she cannot transfer her interest in the house to another party. This is because the inheritance is an expectation, not a guarantee. In the event she does not inherit the house, the person she transferred the interest to has no recourse. Thus, someone cannot ask to have a debt written off in exchange for a future expectation.

Due consideration also needs to be part of an equitable assignment transaction to prevent fraud and ensure a transaction is legitimate. In the example of assigning rights to a trust, for instance, the assignor would need to receive something in exchange. That might be a bulk payment to buy the right to proceeds from the trust later. If due consideration is not present, the court may not uphold the agreement, on the grounds that it could be suspect. A special concern can be attempts to transfer rights to future earnings for the purpose of avoiding tax liability, in which case the assignee might be planning to transfer the funds back or allow the assignor to use them.

Specific legal standards for equitable assignments can depend on the nation. People with concerns can consult an attorney for advice in these situations. Attorneys with expertise in this area are familiar with actions in equity courts and can determine whether a transaction is likely to hold up in court.

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a MyLawQuestions researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Assignments of Equitable Interests and the Origins of Re Rose

2018, The Conveyancer and Property Lawyer

Analyses the rule in Re Rose (Deceased) (CA), that a transfer of legal title can be perfected if the transferor has done everything in his or her power to effect it, including: its early origins; the rule interpreted in its original context; and the consequences of an interpretation of the rule that suggests that it only applies in contexts that are analogous to the assignment of existing equitable interests under a trust.

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The so-called rule in Re Hastings-Bass has developed rapidly in the courts in recent years, but the true basis for the rule has not yet been properly explored. This article seeks to demonstrate that whilst the application of the rule in the courts may well have gone too far, it does have a legitimate foundation in some of the core principles of English trust law. Once its doctrinal nature is understood, the worst excesses of the rule can be curbed in a manner which is both pragmatic and principled. Cited by Lloyd LJ in Pitt v Holt [2011] EWCA Civ 197 at [27]. Also cited by the Scottish Law Commission Discussion Paper 148 on Supplementary and Miscellaneous Issues relating to Trust Law p93 nn12 and 15, and in their Consultation Paper on Defects in the Exercise of Fiduciary Powers (December 2011).

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equitable assignment

• A transfer of property or rights, particularly those in which the transferor has a future interest, that may not technically be legal, but would be considered fair and just by a court focusing on justice and fairness
• Despite the lack of a written contract, the judge recognized the equitable assignment of the store's future profits to the plaintiff.
• The attorney argued that even though there was no formal agreement, the bank's actions reflected an equitable assignment of the debts.
• While there was no formal deed of transfer, the court acknowledged the equitable assignment of the property based on the circumstances.
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How to Legally Sell a Property You Don’t “Own”

January 27, 2011

From the Desk of Dave Dinkel

Equitable Interest In Real Estate – Learn How it Can Work for You

It happens about once every two to three weeks. We get a call from a Realtor® asking how we can be advertising a listed property. Often it is the listing agent who is calling. Sometimes they just start yelling that we are criminals and can’t offer the property for sale. Other times they sneak in as if they were a buyer and grill us about when we bought the property.  Then they go into their spiel of how we are frauds.

I believe a teacher at the local real estate school told the students that only the owner of a property can sell it. This is essentially true unless someone else has what is known as an “equitable interest” in the property. An equitable interest can take the form of a purchase and sale contract, an option contract, a contract for deed, a lease option contract or an approval letter for a short sale, to name a few.

Multiple billions of dollars of commercial real estate transactions are done by exercising options and by assignment of contracts. It is likely that a similar number of single family homes are also contracted for and sold using the above methods of controlling an equitable interest in the properties.

The equitable interest holder can advertise the property but not list it on the MLS® because he is not on title in the public record. For this discussion, we will call the contract holder an investor because he is re-selling the property instead of buying it himself – that’s why he is advertising it for sale!

Let’s assume the investor has a prospect call who agrees to sign a purchase and sale agreement. The investor signs a purchase and sale agreement as the seller.  The contract will contain a clause that stipulates the sale is contingent on his purchase of the property. In some cases the investor can assign his original purchase contract with the seller to the investor’s end-buyer. When this happens, the end-buyer actually closes by taking over the investor’s responsibility for the original contract.

The Assignment of Contract is shown on the HUD-1 closing statement as an assignment fee. This is not a commission a Realtor® would receive. This is important to understand because Realtors® think investors are earning commissions on the sale of the property. In fact, it has been estimated that over eleven billion dollars are lost in commissions to Realtors® each year because of investors doing the transactions as principals, or equitable interest holders in real estate transactions. There might be an opportunity for Realtors® to get on the investor bandwagon instead of complaining.

The major difference between investors and Realtors® is that Realtors® list and attempt to find buyers through their marketing efforts. Investors on the other hand buy properties, take a financial risk, and then sell them to buyers through their marketing efforts. Investors also rehab properties and transform neighborhoods where Realtors® do not.

Recently, a longtime investor approached me to explain about a short sale transaction he had completed. The deal went smoothly but a couple of months later two officers from the state Department of Business Regulation visited him at his home. They asked how he could advertise the property he sold because he didn’t own it and it was also listed in the MLS®. He has been in the business for almost 25 years but he was still stunned. He explained he had a purchase and sale contract from the homeowner.

The agents asked to see the contract and whatever disclosure documents he had given the homeowner. He produced the purchase and sale agreement from the transaction and the disclosure documents that he originally purchased from me. These are called Required Florida Documents and can be found at  www.RequiredFLDocs.com . The agents reviewed the documents, photographed them, and told him he should be glad he did everything properly.

They also mentioned they were “hunting” for a rogue Realtor® who had showed the same short sale property in question to some potential buyers. While not saying exactly why they were looking for him, it is likely because he was accepting deposits on properties from buyers and not giving them back. This is why we will never make out checks to agents and are even very reluctant to make them out to the broker’s agency. Anyone can start a corporation or LLC just to collect deposit checks and then later disappear.

Unfortunately, South Florida has a very much deserved reputation for people taking other people’s money and not doing what they promised, or contracted to do. Be careful out there and don’t be afraid if a Realtor® screams at you about selling a listed property where you aren’t on title.  As long as you have an equitable interest, you rule!

To your limitless success,

Dave Dinkel

Real Estate Mentor Program Founder

Visit  davedinkel.com  for full privacy policy, terms of use, etc.  Be sure to contact us through the website at  davedinkel.com  if you have questions or concerns ([email protected]).  Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential.  No advice is to be construed as legal, accounting, or professional advice EVER.  Please consult related licensed and qualified professionals before taking any action.  No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.

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• Practical Law

Estate administration: assent of equitable interest in land

Practical law uk standard document 0-518-8445  (approx. 10 pages).

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Dealings with equitable interests in residential conveyancing

Published by a lexisnexis property expert.

Note: In practice, the terms ‘equitable’ and ‘beneficial’ tend to be used interchangeably when describing any interest in land which is not a legal estate or a legal interest (and in particular when referring to the interest of a beneficiary under an express, statutory, implied, resulting or constructive trust). However, section 1(3) of the Law of Property Act 1925 (LPA 1925) itself uses the term ‘equitable interest’, and so that term is used in this Practice Note.

How an equitable interest may be held

Where two or more persons own the entire equitable interest in land, they may hold it as:

joint tenants (see, for example, Precedent: Declaration that property held by trustees for themselves as joint tenants), or

tenants in common (see for example, Precedent: Declaration of trust—tenancy in common)

Where there are three or more persons, the equitable interest can be held by way of a combination of both joint tenancy and tenancy in common — so, for example, the equitable interest in a property may be held by trustees for

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Related legal acts:

• Housing Act 1985 (1985 c 68)
• Inheritance Tax Act 1984 (1984 c 51)
• Insolvency Act 1986 (1986 c 45)
• Land Registration Act 2002 (2002 c 9)
• Law of Property (Miscellaneous Provisions) Act 1989 (1989 c 34)
• Law of Property Act 1925 (1925 c 20)
• Trustee Act 1925 (1925 c 19)

Key definition:

Interest definition, what does interest mean.

The return earned on funds which have been loaned or invested (ie the amount a borrower pays to a lender for the use of their money ).

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Home » Dictionary » Equitable interest

Equitable interest

An interest or right enforceable in a court of equity, protected by equitable remedies. An equitable interest is an interest in or right over property, which gives the holder the right to acquire formal legal title. The concept of an equitable interest only exists in jurisdictions with common law backgrounds. Examples of recognised equitable interests include:

• A beneficiary’s interest in a fixed trust
• A partner’s interest in the partnership
• Proprietary interests that are counterparts to common law interests
• Equitable security interests
• Equitable rights over land

An equitable interest is usually defeated by a legal interest (such as one registered on the PPSR ), as it has not been registered, or is incapable of being registered, but there are exceptions to this. An equitable interest arises where formal legal requirements have not been complied with for whatever reason, and looks primarily to the intention and not the form of a legal transaction. An equitable interest usually has to be in writing, but does not require creation by deed.

An equitable interest attaches to land and is good against the whole word except a bona fide purchaser for value without notice (BFPFVWN), or an interest that is otherwise formally registered in a superior way. An equitable interest in land may arise where expressly created or where inferred or imposed by a court. Numerous identical equitable interests may arise over the same piece of land. Where valuable consideration has been paid for property, and even where it hasn’t but all has been done that is necessary to complete the transfer by the transferor, an equitable interest may arise in order to preserve fairness.

An equitable interest as a beneficiary of a trust can be contrasted to a trustee’s legal interest in the trust property, which gives them the rights and powers to deal with and invest the trust property, subject to the interest of the beneficiary.