What is equitable conversion under property law?
When a buyer becomes the “equitable owner” before receiving the deed, it’s referred to as “equitable conversion” in real estate law. This happens after the parties have signed a legally binding contract for the sale of land. It is used due to fairness considerations, the special nature of the property, or the effects of the party not performing.
When a buyer signs a contract obligating them to buy the property at a later time, the equitable conversion doctrine is used to make them the equitable owner of title to the property. After the contract is signed but before the closing, the buyer is regarded as the equitable owner. The buyer will still be required to pay the agreed-upon purchase price for the land if, for instance, a house on the property burns down after the contract has been signed but before the deed is transferred. Although deeds are often given to secure the performance of other obligations as well, equitable conversion may also be found when a deed is given as security for the payment of money. By establishing how to divide the risk of loss for damage to the property prior to the closing, parties can avoid applying the doctrine of equitable conversion.