If one is purchasing a property from a developer which is still under construction. One signs a contract and make an initial and future progress payments. At what time does the legal interest in the property become the purchasers? Is it a) at closing when final payment and title is transferred, b) upon execution of the contract to purchase, at which time the developer becomes a lien holder even-though they still hold title.

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Originally Posted by Sykes

Is it a) at closing when final payment and title is transferred, b) upon execution of the contract to purchase, at which time the developer becomes a lien holder even-though they still hold title.

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Hello S:

At closing.. But some of the things you think happens at closing, don't. And some of the think you don't think happens at closing, do.

excon

Thanks for your quick reply. I would have thought the other way, so at time of execution the beneficial owner becomes the purchaser. Although title does not pass till closing, title is held by the vendor more as security for full payment, similar to mortgagee rather than beneficial owner.

It is an interesting point and I would enjoy if you could expand on your reasoning.

A contract is nothing more than mutual promises to perform actions in the future. When a contract gets signed the developer does not become a lien holder and is not holding title as security for full payment. At the closing the promises contained in the contract are completely fulfilled, title is transferred and then the purchaser becomes the owner.

The purpose of a closing IS the transfer of title. Until then the title remains with the owner of record. A contract represents only an interest in the property that is not consummated until the terms of the contract are fulfilled.

Not sure where you got the idea that it was different.

Lisa,

I hope I do not come across as argumentative. I do appreciate all the comments and discussion.

Once the purchase agreement is signed, the vendor is no longer the beneficial owner but they do remain the title owner until closing. As you pointed out a contract is a mutual agreement, breaking of the same would be subject to legal challenge. Fortunately there is no issue with the vendor nor property but there is a question of beneficial ownership and at what time that passes. At the time of executing the purchase agreement, I would have thought, that beneficial ownership changes to the purchaser and the vendor gains the promise of funds per the terms of the contract and secured by retention of the title.


Scott,

Thanks for your reply and I agree with what you said. The question posed questions beneficial ownership and not actual ownership. When you said, "A contract represents only an interest in the property," I perceive that to mean beneficial ownership has changed. You also said, "that is not consummated until the terms of the contract are fulfilled," this is when actual ownership changes. Maybe I should use the term "legal interest" rather than "beneficial ownership", but I believe them to be interchangeable in regards to this matter.

Why don't you tell us the exact circumstances involved? It sounds like the developer might be taking action on the property that you feel may be detrimental to your future ownership.

As for the issue of beneficial ownership, it might be argued that a developer has a fiduciary responsibility to the purchaser once a contract is signed. But beneficial ownership? For legal purposes that really means nothing.

First, I agree with Lisa. Asking an abstract question is fine if you are trying to do a homework assignment. But if you have a real situation, then explain the situation so we can help.

How do you define "beneficial ownership". To mean that occurs when someone gets a benefit from the property. What benefit do you get? The property is still under development so you can't use it. You don't get a tax deduction for it. What benefit do you think you derive from the property when you have only entered a contract for purchase?

Due to the circumstance I am unable to elaborate. I realize this hampers discussion but I am very appreciative for all of the responses.

Scott,
I define beneficial ownership, to be the time at which the purchaser gains a legal interest in the property. Although the property can not be used there is an expectation that the specified property be held and completed for the purchaser. With final payment the title will be transferred at closing.

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Originally Posted by Sykes

Scott,
I define beneficial ownership, to be the time at which the purchaser gains a legal interest in the property. Although the property can not be used there is an expectation that the specified property be held and completed for the purchaser. With final payment the title will be transferred at closing.

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And on what basis of law do you so define it so? Because I know of no basis for it.

You don't have ownership until title is transferred. End of story.