Equitable Title vs. Legal Title | Double Escrows / Double Closes & Assignments of Contracts

Equitable Title can be given in the following contracts: Lease Option, Lease Purchase, Contact for Deed & Agreement for Sale. Equitable does not give the actual title to the property like it would if a buyer were using a mortgage to buy a home or if the title was held "fee Simple" also known as Legal Title. Equitable Title means giving the buyer an "equitable position" in the property. The title is conveyed (sold) only after the buyer has satisfied the contract. Equitable Title during tax time I have had a CPA explain that the interest in an agreement for sale in a tax write-off. Tax laws are constantly changing, so please consult your CPA before assuming you can write-off the interest like you could a mortgage. Equitable Title & Lease Options Anytime you contract a home to buy the home, it's said you have an equitable interest in the home. We refer to this as having equitable title. By having this type of title, you have the right to purchase the home at a said price, within a certain time period. So, a lease option is having equitable title.

Equitable Title Example: A Buyer finds a seller carryback or owner financing property. The seller is only offering a contract for deed also known as an agreement for sale or land contract. The buyer will have to sign a real estate contract agreeing to pay a monthly installment until the note/mortgage is paid off or until the buyer has a chance to obtain a mortgage and purchase the home. Keep in mind, they'll be purchasing the home and not a refinancing it to pay the seller off. Even though the buyer has equitable title, it does not entitle them to the title of the property so they do not yet own the home.

Lease Option: Gives the buyer the right to purchase the property within a specified time period, usually, for an extra added down-payment. The lease option must be executed within the time-frame for the buyer to have that money count towards the purchase price. If the money is not used, it's forfeited.

Options for Purchases in the eyes of the courts

"Arizona courts generally consider the option price to merely be the buying of the right to tie up the real property for a specified period of time, thus the buyer will have received valid consideration for the option price upon breach or expiration of the option. Because an earnest money forfeiture clause is presumed invalid and must be found to be liquidated damges clause before it can be enforced, the seller of the real property generally find it easier to terminate an option contract and retain the "option price", then to terminate a purchase contract that contains an earnest money deposit and retain the earnest money deposit."

"An option to purchase real property, in its most basic form, is an agreement in which one party is given the right to buuy property within a period of time for a consideration paid to the seller. The option is simply a contract by which the owner of real property agrees with another party that the other party shall have a right to buy the owner's property at a fixed price or under other agreed upon terms within a certain period of time. If the option to purchase is not excersised, it will expire with the potential buyer having received full value for the option price. Thus, unlike a provision calling for the forfeiture of an earnest money deposit, there is no forfeiture in the option transaction and thus no need to analyze the option price under the test for determining if a valid liquidated damages clause exists."

'While an option may at times give the seller an edge over a buyer at retaining money given to secure the performance of the transaction, merely naming an earnest money deposit forfeiture clause an option will not be sufficient to avoid scrutiny of the courts. Arizona courts will look to the nature of the clause to determine whether it was i fact an option, or a forfeiture provision that must be reviewed under the test for liquidated damages clause to be enforceable. It is well settled that in determining whether a particular clause calls for an option, liquidated damages or for a penalty, the name given to the clause by the parties no conclusive, and the controlling elements are the intention of the parties and the special circumstances of the case." -William Kozub (480) 624-2777 wkozub@bkl-az.com

Lease Purchase: A tenant contracts a home for lease but an addendum is added to the lease agreement which binds a purchase agreement to it. The purchase follows the expiration of the lease or during the lease depending on the terms of the real estate contract. Extra money is required for a lease purchase just as a lease option. In most cases, the down-payment for a lease purchase is more than a lease option. The purchase price can be negotiated at a set interval of 5% appreciation each year or to have the house appraised at time of purchase. Either way, the seller will more likely look at the current market conditions to make an educated decision to yield the most profit.

Other forms of Equitable Title:

Anytime a buyer contracts a home for sale, whether it be a bank owned property, foreclosure, short sale, owner agent, it's said the buyer has equitable title.

Double Escrow or Double Close aka Back to Back Closing aka Assignment

A double escrow is when a buyer in my opinion abuses their right of having equitable interest in the property. I'm very much against Double Escrows, which is why you'll find the information very bias.

An double escrow is when a buyer/investor finds a home for sale, contracts it, then tries to find another buyer to use their money to buy the home buyer A has under contract. Buyer A grosses up the price of the home without the seller knowing or buyer B knowing. Buyer B sets up title, gives the title company the money to buy the home either through cash or a mortgage loan, then the title company gives Buyer A the money to buy the home from Buyer B. Buyer A, takes a the difference between what they contracted the home for and what they were able to convince Buyer B to pay.

Are Double Escrows legal in Arizona? No, well it depends.

If you're a Realtor, you cannot conduct a double escrow unless you are representing a client.

What investors need know:

Banks do not allow double closings or back to back closings. Title companies are required to disclose to all parties what the property is being bought for and what it is under contract for to avoid any lawsuit. Banks have in their purchase contracts, " no conveyance or assignment within 90 days of contract closing." All these are put in place to protect Buyer B who decides not to use a Realtor and purchase a home that's already under contract. A Realtor would never allow this or would protect the buyer through the closing.

What is an Assignment of Contract?

When Buyer A assigns the real estate contract over to another buyer for a small profit. Typically, the real estate contract must state that Buyer A is attempting to assign the real estate contract to a third party. If the Seller allows this, then an assignment can take place.