The Real Estate Encyclopedia
What Is Equitable Conversion?
Category - Home Selling Questions - General Home Selling FAQ's

Equitable conversion is a rule of law created to give the buyer, under an executory contract of sale, title to the property for certain purposes before the date set for closing.  Because a court of equity, “regards as done that which ought to be done,” the doctrine of equitable conversion holds that immediately upon the making of the contract, the seller holds the legal title for the buyer, who has the beneficial, equitable title.  Thereafter, the seller holds legal title only as security for the purchase price.  In essence, the seller’s interest (legal title of the real estate) is converted into an interest in personal property (the money to be paid to purchase the property).  Conversely, the buyer’s interest (purchase money) becomes an interest in real estate. 


Thus, if at the time of the sale’s contract execution, the seller is still in possession of the property (as is usually the case), he or she holds the property subject to a legal obligation to take of it for the buyer and must be sure the property does not suffer damage. 


This doctrine is applied should the seller die before the closing or in cases involving risk of loss or destruction of the premises.  For example, a seller had entered into a sales contract to sell her home for $100,000 but she died before the closing.  She had willed her personal property to her son and her real property to her daughter.  Through the doctrine of equitable conversion, the seller’s interest in her home is treated as personal property and, therefore, the proceeds from the sale would pass to her son. 


Home Buying Questions - Buying Legal & Closing FAQ's
Home Buying Questions - General Home Buying FAQ's
Home Selling Questions - General Home Selling FAQ's
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