MBE Rules · Real Property
Mortgage — lien vs title theory
The rule
Lien theory (majority): mortgage is just a lien; mortgagor keeps title; lender has no right to possession until foreclosure. Title theory (minority): legal title transfers to lender, who has right to possession on default. Intermediate theory: mortgagor has title until default.
In plain English
In lien theory, the homeowner keeps ownership and the bank just has a claim. In title theory, the bank gets ownership and can take possession if payments are missed.
Worked example
In a lien theory state, if the homeowner misses payments, the bank can't take the house until foreclosure. In a title theory state, if the homeowner defaults, the bank can take the house right away.
Memory hook
Lien is lean, title takes all. Lien theory: borrower keeps title. Title theory: lender gets it on default.
The trap
Students think: lender can possess anytime under lien theory. Wrong, because lien theory keeps title with borrower until foreclosure. The actual test is possession only post-default.
How examiners test it
The MBE loves: borrower defaults, lender wants possession. Trap: assuming lender's right under lien theory. Remember, only title theory allows possession on default.
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