Legal Title

Equitable title and legal title are like two parts to a complete title. Equitable title gives an entity beneficial interest in the property or the full use and enjoyment of the property. Legal title provides enforceable legal ownership in court. Legal title is commonly used as collateral when there is debt on a property.

When a loan is secured through a mortgage, either the borrower maintains legal title and the lender places a mortgage lien on the property (lien theory states) or the lender takes legal title, while the borrower has equitable title (title theory states). If the borrower is in default, with a mortgage the lender has to go through the courts to foreclose. When the loan is secured through a deed of trust, legal title is given to a neutral third party, or trustee, and the borrower can usually foreclose on the property without going to court.