Signing Contract = Transferring Title?

It may come as news to some, but when a seller executes a contract of sale, the seller is transferring equitable title to seller's property to the buyer.  The Supreme Court of the State of Connecticut decided the case of Salce v. Wolczek (SC 19144) in an opinion just released, and indicated that under the Doctrine of Equitable Conversion, equitable title to the property passes to the buyer upon the execution of a contract of sale.

Under the Doctrine of Equitable conversion (the "Doctrine"), the seller acquires a lien against the property for the payment of the balance of the purchase price and holds the legal title in trust for the benefit of the buyer.  The buyer is not entitled to possession of the property, but could legally mortgage the property the Court indicated.

The Court further stated that the seller's interest in the property is transferred to the balance of the purchase price due and becomes a personal property interest. The buyer on the other hand does acquire an interest in realty.  Upon the death of the buyer before the formal transfer of the legal title to the property, the buyer's interest in the property becomes part of the buyer's estate.  That fact alone might have tax and other unintended consequences.

In addition, the buyer acquires the right to enforce the contract of sale by a suit for specific performance.  In other words, the buyer has the right to force the seller to convey the legal title to the buyer provided that the buyer pays the balance of the purchase price due.

The Doctrine arises out of the English common law and has been recognized to some extent or another for hundreds of years.  It is still recognized and enforced in some states and has been altered or eliminated by statute in other states. 

The Court did recognize that the Doctrine is a legal fiction, and acknowledged that it is "rooted in the principle that equity views a transaction as being completed at the time the parties enter into the transaction, irrespective of whether a formal exchange of legal title has taken place".

If you have any questions as to whether the Doctrine applies in your state, seek the advice of a local, competent real estate attorney.  You may want to consider the consequences of the application of the Doctrine if it does exist in your state.