Legal vs. Equitable Title to Real Estate -- The Deed Doesn't Always Dictate Ownership

San Antonio Texas Real Estate Attorney Trey Wilson wrote:

In the area of real estate law in Texas, ownership of property isn't always black and white. In fact, many a real estate lawsuit has been fought over divided, fractured and disputed ownership interests in a single property. In some instances, the "owner of record," or "title owner" (i.e. the party whose name appears on the deed) is not the only (or even the superior) possessor of an ownership interest in real estate.

In fact, there are two components to ownership of real estate in Texas -- "legal title" and "equitable title." While both components are usually vested in the same owner, sometimes they can be vested in different parties, and that's where disputes frequently arise. 

Legal title arises from the appearance of a patty's name on a deed, which evidences his ownership.  Thus, "legal title" to property evidences apparent ownership (ownership "on paper"). Yet, legal title "does not necessarily signify full and complete title or a beneficial interest." Longoria v. Lasater, 292 S.W.3d 156, 165 (Tex. App.-San Antonio 2009, pet. denied). In fact, standing alone, legal title is sometimes unimportant because equitable title is superior to legal title. 

As one court of appeals stated, it is "[o]wnership of the equitable estate [that] is the real ownership, and the legal estate is no more than the `shadow following the equitable estate,' which is the substance. . . ." Neeley v. Intercity Mgmt. Corp., 623 S.W.2d 942, 951 (Tex. App.-Houston [1st Dist.] 1981, no writ) (quoting Patty v. Middleton, 17 S.W. 909, 912 (Tex. 1891)). 

This is because "equitable title" indicates a beneficial interest in property and "gives the holder the right to acquire formal legal title." Longoria, 292 S.W.3d at 165. Equitable title arises by operation of law and exists independent of the execution of a deed; the recording of the deed is not essential to an effective conveyance of title. Gaona v. Gonzales, 997 S.W.2d 784, 787 (Tex. App.-Austin 1999, no pet.). Further, a party holds equitable title when it possesses "the present right to [compel] legal title." Harris County Appraisal Dist. v. Southeast Texas Hous. Fin. Corp., 991 S.W.2d 18, 23 (Tex.App.-Amarillo 1998, no pet.); see also Comerica Acceptance Corp. v. Dallas Cent. Appraisal Dist., 52 S.W.3d 495, 497-98 (Tex.App.-Dallas 2001, pet. denied).

Equitable title is vested in the purchaser from the date of the contract to convey real property or from the date he takes possession of the property. See Cadle Co., 46 S.W.3d at 287 (citing Leeson v. City of Houston, 243 S.W. 485, 488-90 (Tex. Comm'n App. 1922, judgm't adopted)). That is, a purchaser receives equitable title in property when he pays the purchase price and fully satisfies the obligations under the contract of sale (or a "contract for deed"). See Johnson v. Wood, 157 S.W.2d 146, 148 (Tex. 1941); Cadle Co. v. Harvey, 46 S.W.3d 282, 287-88 (Tex. App.-Fort Worth 2001, pet. denied); see also Yarto v. Gilliland, 287 S.W.3d 83, 89-90 (Tex. App.-Corpus Christi 2009, no pet.). 

Determining the rights of various "owners" of property can have far reaching implications bearing on the right of possession of the property, the right to sell or convey it, and the extent to which liens or judgments placed against the property are enforceable.