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Equitable Conversion

Equitable Conversion

Under common law systems, equitable conversions are a type of doctrine of real property where the individual purchasing the real property is considered the equitable owner of title for the real property at time of signing the contract, which binds him or her to the land purchase in the future. The legal title to the property is retained by the seller, up until the agreed upon date of conveyance. Meanwhile, during this period the land interest is legally considered to be personal property, therefore, the right for payment of money and not a right to use the property itself.

At the time of signing an equitable conversion, any and all risk of loos will be transferred over to the purchaser. Therefore, if the land interest contains a house or other type of interest, and it destroyed after the signing of the equitable conversion contract, but prior to the conveyance date agreed upon in the deed contract, the purchaser will remain responsible for paying the purchase price agreed on and stated in the contract. However, there is an exception in the event the individual selling either in possession of the property or considered in possession of the real property did not properly protect the interest after signing.

Because of the potential for loss after signing an equitable conversion contract, it is recommended that all parties involved stipulate who will be responsible for losses in occurrences that result in loss, which can help avoid issues between parties at a later date. This is a general rule and recommendation, but this does vary between jurisdictions.

Effects of Death

If after signing the equitable conversion the grantor or grantee dies, but before the conveyance of the deed is executed, the party’s interest will be governed by the doctrine as to how it will transfer to his/her heirs. For instance, if the seller has willed the real property to his daughter, while personal property goes to the son. If the seller of the interest in the land dies after the conveyance contract has been signed by the purchaser, the sale then passes to the son of the seller.

Meanwhile, if the buyer dies prior to the date of conveyance, but after the contract signing, in most jurisdictions the interest of real property developed from the contract passes to the heirs of the purchaser, while personal property interest developed from the contract passes to the estate of the seller.

Equitable conversions are not recognized by New York State. Within New York, risk of loss is retained by the seller until the purchaser receives possession or title of property, long as the purchaser is without fault.

Uniform Vendor Purchaser Risk Act

There are many states adopting the UVPRA, which negates the Equitable Conversion doctrines as relating to the associated risk of loss. With this act, the seller would retain the risk of loss. Meanwhile, provisions under the UVPRA can usually be avoided or modified within Land Sale Contracts.

Rabin, Edward et al. Fundamentals of Property Law. Foundation Press: New York, 2006. pp. 1128–1129.