Wednesday, January 7, 2015

MBE Fast Fact: Equitable Conversion

In all questions concerning the sale of real property there are two important dates to keep in mind: The first is the date of the contract between buyer and seller, and the second is the date of closing when legal title is delivered from seller to buyer. But there will also be time between those two dates, and on the MBE many terrible things will occur during that time that will effect the analysis.

Specifically, the doctrine of equitable conversion supplies the rules for dealing with those events that occur between the contract and the date of closing. The doctrine holds that once the parties have entered into a contract, the buyer's interest in the contract is converted into real property, and the seller's interest is converted into personal property.

And that conversion greatly affects the analysis. For example, assume X is the seller, and Y is the buyer. X dies after the contract is entered into with Y but before the date when legal title was actually transferred to Y. Because legal title has not actually changed hands, it might be expected that X's heirs would receive the real property upon the death of X. But, rather, due to the doctrine of equitable conversion, by the time of seller's death, seller was no longer deemed to have held an interest in the real property. Instead, seller held an interest in the personal property, specifically the proceeds from the sale of the real property.

Seller's heirs may be entitled to those proceeds, but buyer will be entitled to the real property. And on that note, if buyer were to die during the period prior to closing, buyer's heirs would have the right to the real property.

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