Lien theory state

Lien Theory state the buyer holds the deed to the property during the mortgage term. The mortgage becomes a lien on the property, but title remains with the buyer. When buyers repays the loan acquires only a lien on the property but both legal and equitable title are retains the borrower. Also foreclosure proceedings is removed when of all loan payments have been completed (J.I. Wiedemer, p.44). So, security for the loan is the mortgage. What is important lender's cannot impact sale of the collateral to satisfy the loan but if the debt and mortgagee's claims will be satisfy then sale of the mortgaged property is possible (D.B. Burke, J. A. Snoe,p.398).

Theory of mortgages

Other theories of mortgage security:

• Title Theory State

Other theory refers to the concept of mortgage is title theory. In this theory the mortgagee holds title of the property until mortgage has been satisfied. So, actually the borrower do keep title to the property during the loan term (D. A. Schmudde, p.7).

• Intermediary Theory State

There are also some states which adopted hybrid philosophy. Intermediary theory state is a combination of lien and title theory state. The borrower holds the title during the mortgage, but the lender can take it away if the buyer defaults on the mortgage ( Real Estate Principles, p. 271).

Difference between those theories is more theoretical than practical. Regardless of the theory, the borrower lose title of the property when the loan is not repaid ( Real Estate Principles, p. 271).

States by theory

In the United States, more states are lien-theory states only few states follow other two theories

Theory	State
Lien Theory State	Alaska, Minnesota, Oklahoma, Alabama, Missouri, Oregon, California, Montana, South Carolina, Colorado, Nebraska, Florida, Nevada, South Dakota, Idaho, Hawaii, New Hampshire, Texas, Indiana, New Mexico, Utah, Washington, Iowa, Kansas, New York, West Virginia, Wisconsin, Kentucky, North Dakota, Louisiana, Wyoming, Michigan, Ohio
Title Theory State	Georgia, Maine, Maryland, Mississippi, Pennsylvania, Rhode Island, Tennessee, Vermont
Intermediary Theory State	Arkansas, Connecticut, Delaware, Washington D.C., Ilinoi, Massachusetts, New Jersey, North Carolina, Virginia

( Own elaboration based on J.I. Wiedemer, p. 45)

Examples of Lien theory state

• Example 1: A homeowner takes out a loan to purchase a house. Under the lien theory, the lender holds the deed to the property during the term of the loan. The mortgage becomes a lien on the property, but title remains with the homeowner. When the loan is paid off, the lender's lien is removed, and the homeowner has full legal and equitable title to the property.
• Example 2: A small business owner takes out a loan to purchase inventory. The loan is secured by a lien on the inventory. If the loan is not repaid, the lender can foreclose on the inventory and use the proceeds to satisfy the debt. If the debt and all other claims are satisfied, the lender can sell the inventory and use the proceeds to repay the loan.

Advantages of Lien theory state

Lien theory offers several advantages for both buyers and lenders. These include:

• The buyer retains title to the property while the loan is in effect, meaning that they can continue to use and enjoy the property as they wish, up to the point of foreclosure.
• The lender has a legal interest in the property, meaning that they can foreclose on it if the loan is not paid as agreed. This provides a greater level of security for the lender.
• The lien also serves as a deterrent for the borrower, as it can be used to take action if the loan is not paid as agreed.
• The lien also serves as an incentive for the borrower to stay current on their loan payments, as the lien will be discharged once the loan is paid in full. This encourages borrowers to make timely payments and avoid defaulting on their loan.

Limitations of Lien theory state

The limitations of Lien Theory include:

• The lien theory does not provide legal protection from creditors in the event of default. If a borrower defaults on the loan, the lender may not be able to recover the full loan amount from the proceeds of the foreclosure sale.
• The lien theory does not allow for the lender to have any control over the mortgaged property. This means that the borrower has full control over the property and can make changes without the lender’s consent.
• If a borrower does not pay their loan, the lender is not allowed to take possession of the property. This means that the lender cannot seize the property to recover the loan amount.
• If the loan is transferred to another party, the new lender will not have the legal right to the lien. This means that the original lender may not be able to receive the proceeds of the loan.
• The lien theory does not provide any protection against creditors in the event of bankruptcy. The lien may be removed and the creditor may not be able to receive any of the proceeds from the foreclosure sale.

Other approaches related to Lien theory state

The Lien Theory is a legal concept that states that the buyer holds the deed to the property during the mortgage term and the mortgage becomes a lien on the property. Additionally, there are other approaches related to this theory that include:

• The Security Interest Theory, which states that the lender has a right to the property and is entitled to its proceeds should the borrower fail to make payments.
• The Equitable Mortgage Theory, which states that the deed is held by the lender as a security for the loan but the borrower is still entitled to the property and can take back their title when the loan is repaid.
• The Constructive Mortgage Theory, which states that the lender has a lien on the property even if there is no written document or deed.

In summary, the Lien Theory is a legal concept that states the buyer holds the deed to the property during the mortgage term, but other approaches such as the Security Interest Theory, the Equitable Mortgage Theory, and the Constructive Mortgage Theory also exist.

Lien theory state — recommended articles

Bankers lien — Lien theory — Mortgage deed — Collateral assignment — Absolute assignment — Fixed and floating charge — Clear title — Special warranty deed — Satisfaction of mortgage

References

• Anderson J. L., Bogart D.B. (20019), Property Law: Practice, Problems, and Perspectives, Wolters Kluwer Law & Business
• Burke D.B., Snoe J.A.(2008),Property: Examples & Explanations,Aspen Publishers Online
• Feitshans T.A. ( 2019),Agricultural and Agribusiness Law: An Introduction for Non-Lawyers, Routledge
• Jennings M.M. (2010), Real Estate Law, Cengage Learning
• Schmudde D.A. (2004), A Practical Guide to Mortgages and Liens, ALI-ABA
• Wiedemer J.I. (1994), Smart Money Guide to Bargain Homes, Dearborn Trade Publishing
• Real Estate Principles(2006), Rockwell Publishing

Author: Wioletta Szymska

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