To Trust in Another: The Constructive Trust

The constructive trust. To most it's just another legal term that confuses the average person. Lawyer speak. But I think it's important for anyone in the real estate or title industry to understand. A constructive trust is essentially a term to refer to the manner in which one individual (the trustee) holds legal title for another individual (or individuals). This arrangement often comes up when one person takes legal title for another because, for example, the beneficiary could not qualify for a loan to buy the property. (There are many other reasons why one person would take title for another, such as in a partnership to develop or manage real property.) Even though the title holder, is well, on title, the beneficial owner is the true owner, and the title holder is merely a constructive trustee. If the "trustee" disagrees that there is such an arrangement, a complaint is often filed, and there are many factors that a court will look at in deciding whether there is a constructive trust. (The court will have to determine what the intent of the parties was at the time the title was put in the "trustee's" name.) One factor is who made the payments for the mortgage or perhaps property taxes. Another factor is why the title was placed in the defendant's name.

A similar type of trust is a resulting trust. I'll post about this one later. Both types of trusts are important to understand in today's real estate environment.