Lien Theory

Lien theory, the theory that Florida and the majority of states follow, is the idea that a mortgage resembles a lien or an encumbrance on the property, so that the mortgagee [lender] acquires only a lien on the property and the mortgagor [borrower] retains both legal and equitable title unless a valid foreclosure occurs. In a lien theory state, if a borrower defaults or fails to meet the terms of the mortgage, the lender may go through formal foreclosure proceedings in order to gain legal title to secure repayment of the loan. The states that follow the lien theory are Alaska, Arizona, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, New York, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Texas, Utah, Washington, West Virginia, Wisconsin, and Wyoming.

Title Theory

Title theory is the idea that a mortgage transfers legal title of the property to the mortgagee [or lender], who retains it until the mortgage has been satisfied or foreclosed. In states that follow the title theory, title of the mortgaged property is split into legal title granted to the lender and equitable title granted to the borrower. When the borrower has met the demands of the mortgage, they are entitled to legal title as well. Until the debt is repaid, the lender retains ownership of the mortgaged property while the borrower retains possession. Since the lender has legal title to the mortgaged property, if the borrower defaults they have the right to immediate possession of the property. The states that follow the title theory are Alabama, Arkansas, Connecticut, Maine, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, North Carolina, Ohio, Pennsylvania, Rhode Island, Tennessee, Vermont, and Virginia.

Intermediate Theory

The intermediate theory is a hybrid theory of both the title and lien theories. The intermediate theory resembles the lien theory until there is a default on the mortgage whereupon the title theory applies.
Mortgage Alternatives

Deed of Trust

A deed of trust is a form of securing repayment of a loan in which the borrower grants a deed conveying title to real property to a trustee as security until the borrower repays the loan. This type of deed resembles a mortgage, except that a deed of trust involves three parties, the lender, the borrower, and the trustee. In the event that the borrower fails to meet the terms of the loan, the trustee will convey the title to the lender as security for their loan, conversely when the borrower has met all of the terms, the trustee grants the title to the borrower free and clear of any liens for the loan. An advantage to the deed of trust method of securing repayment of a loan is that the process of foreclosing the property to repay the loan is non-judicial, quicker, and easier than a traditional foreclosure proceeding.