Chapter 4, Unit 1 Flashcards
Legal and Equitable Title
Owning title to real property commonly connotes owning the complete bundle of
rights that attach to the property, including the right to possession. More
accurately, someone who possesses all ownership interests owns legal title to the
property.
Legal title is distinct from equitable title, which is the interest or right
to obtain legal title to a property in accordance with a sale or mortgage contract
between the legal owner and a buyer or creditor. During the contractual period of
time when ownership of legal title is contingent upon the contract, the buyer or
lender owns equitable title to the property.
For example, a buyer enters into a contract for deed to purchase a house. The
seller lends the bulk of the purchase price to the buyer for a term of three years.
The buyer takes possession of the property, and makes payments on the loan.
During this period, the seller retains legal title, and the buyer owns equitable
title. If the buyer fulfills the terms of the agreement over the three year period,
the buyer has an enforceable contract to obtain legal title.
Another common example is a mortgage loan transaction that gives the lender
the right to execute a strict foreclosure, which transfers legal title to the lender
in the event of a default. With this contractual right, the lender has equitable
title to the property.
In practice, the terms “title” and “legal title” are often used interchangeably.
Notice of Title
In any legal system that permits private ownership of real property, there will always be disputes as to who truly owns a particular parcel of real estate. For example, an owner might “sell” his property to three unrelated parties.
The first party buys the property at the earliest date, the second party pays the highest price, and the third party receives the best deed, a warranty deed. Who owns legal title to the property?
Ownership of legal title is a function of evidence. A court will generally rule that the person who has the preponderance of evidence of ownership is the owner of the property. In the example, if the first two buyers did not receive a deed while the third party did, the third party may have the best evidence and be ruled the legal title-holder.
However, what if the first buyer had moved into the house and occupied it for six months before the original owner sold the property to the second and third buyers? And what if the second buyer, after searching title records, reports that the seller never really owned the property and therefore could not legally sell it to anyone! Now who owns the property?
The illustration underscores the difficulty of proving title to real estate: there is no absolute and irrefutable proof that a party holds legal title. Our legal system has developed two forms of title evidence– actual notice and constructive notice– to assist in the determination.
Actual notice. The term “notice” is synonymous with “knowledge.” A person who has received actual notice has actual knowledge of something. Receiving actual notice means learning of something through direct experience or communication.
In proving real estate ownership, a person provides actual notice by producing direct evidence, such as by showing a valid will. Another party receives actual notice by seeing direct evidence, such as by reviewing the deed, reading title records, or physically visiting the property to see who is in possession.
Thus if Mary Pierce drives to a property and sees directly that John Doe is in possession of the home, Mary then has received actual notice of John Doe’s claim of ownership. Her knowledge is obtained through direct experience.
Constructive notice. Constructive notice, or legal notice, is knowledge of a fact that a person could have or should have obtained. The foremost method of imparting constructive notice is by recordation of ownership documents in public records, specifically, title records.
Since public records are open to everyone, the law generally presumes that when evidence of ownership is recorded, the public at large has received constructive notice of ownership. By the same token, the law presumes that the owner of record is in fact the legal owner.
Thus, if John Doe records the deed of conveyance, he has imparted, and Mary Pierce has received, constructive notice of ownership. Possession of the property can also be construed as constructive notice, since a court may rule that Mary should have visited the property to ascertain whether it was occupied.
A combination of actual and constructive notice generally provides the most indisputable evidence of real property ownership.
Transferring Title
Transfer of title to real estate, also called alienation, occurs voluntarily and involuntarily. When the transfer uses a written instrument, the transfer is called a conveyance.
Voluntary alienation. Voluntary alienation is an unforced transfer of title by sale or gift from an owner to another party. If the transferor is a government entity and the recipient is a private party, the conveyance is a public grant. If the transferor is a private party, the conveyance is a private grant.
A living owner makes a private grant by means of a deed of conveyance, or deed. A private grant that occurs when the owner dies is a transfer by will.
Involuntary alienation. Involuntary alienation is a transfer of title to real property without the owner’s consent. Involuntary alienation occurs primarily by the processes of descent and distribution, escheat, foreclosure, eminent domain, adverse possession, and estoppel.
Deeds of Conveyance - Delivery and Acceptance
A deed is a legal instrument used by an owner, the grantor, to transfer title to real estate voluntarily to another party, the grantee.
Execution of a valid deed in itself does not convey title. It is necessary for the deed to be delivered to and accepted by the grantee for title to pass. To be legally valid, delivery of the deed requires that the grantor:
be competent at the time of delivery
intend to deliver the deed, beyond the
act of making physical delivery
