Equitable conversion, in the context of real estate law, refers to when, after the parties have entered into a binding contract for the sale of land, the buyer becomes the "equitable owner" before the delivery of the deed. It is applied due to considerations of fairness, because of the unique character of the property or the consequences of the party not performing.
The doctrine of equitable conversion is used to make a buyer the equitable owner of title to the property at the time that they sign a contract binding them to purchase the land at a later date. The buyer is deemed the equitable owner after the contract is signed, but prior to the closing. For example, if a house on the property burns down after the contract has been signed, but before the deed is conveyed, the buyer will nevertheless have to pay the agreed-upon purchase price for the land. Equitable conversion may also be found when a deed is given as security for the payment of money, though deeds are given to secure the performance of other obligations as well. Parties may avoid application of the doctrine of equitable conversion by providing for how to allocate the risk of loss for damage to the property prior to the closing.
