Which of the following best describes equitable conversion?

Equitable conversion is primarily rooted in the common law principle concerning the risk of loss during a transaction involving real estate. It occurs when a buyer and a seller have entered into a legally binding purchase agreement, effectively changing the nature of the title from a mere potential interest to an equitable interest. Under equitable conversion, once the contract is signed, the buyer is considered the equitable owner of the property, while the seller retains legal title. This principle dictates that if any loss or damage occurs to the property before the actual transfer of title, the risk typically falls upon the buyer, reflecting the shift in ownership interest.

Understanding this concept is crucial for recognizing the implications in real estate transactions, especially concerning who bears the risk during the period between contract acceptance and actual closing. It emphasizes the importance of having appropriate insurance coverage and the responsibilities of both parties involved in a real estate transaction.