Lien Theory (Legal Definition And What You Should Know)

What is Lien Theory?

What are the lien theory states?

What is the difference with the title theory?

Keep reading as we have gathered exactly the information that you need!

Let’s dig into our mortgage law and real estate knowledge!

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What is the Lien Theory 

In many cases, a person or company looking to purchase a real estate property will need financing from the bank, lender, or financial institution.

When financing is involved in the purchase of a real estate property, it’s important to understand the laws applicable to how a lender may exercise a recourse against the property in the event of default on the mortgage payments or financing agreement.

There are two types of mortgage law theories this matter:

  • Lien theory
  • Title theory 

In accordance with the lien theory, the buyer or borrower will hold the deed to the property during the financing period.

Under the mortgage agreement, the borrower promises the lender that he or she will pay back all sums borrowed.

The mortgage agreement becomes the lender’s “lien” against the property while the actual “property deed” will be registered in the name of the borrower.

When the mortgage is fully paid off, the lien against the property is extinguished. 

Let’s compare that to the title theory.

In accordance with the title theory, the borrower does not acquire title to the property during the financing period or term of the mortgage.

In this case, the lender will hold the title to the property as security until the entire loan or mortgage is paid off.

Even though the title to the property is held by the lender, the borrower is given the right of possession to the property and can use the same as if it’s his or her own.

However, the legal title to the property (or property deed) will only get transferred over to the borrower when all the mortgage payments are made.

Lien Theory definition

The lien theory refers to mortgage laws governing the manner lenders, banks and financial institutions can hold security on a real estate property.

According to Cornell Law School’s Legal Information Institute, the lien theory is defined as follows:

Most states, however, follow the lien theory under which the legal title remains with the mortgagor unless there is foreclosure.

Further to the lien theory, a mortgage lender will not have title to the real estate property for the duration of the mortgage.

Instead, the borrower will be given the actual title to the real estate property and the lender’s security will be outlined under the mortgage agreement.

The mortgage contract serves as the lender’s lien or security against the property.

Should the borrower default on the mortgage payments, the lender can exercise the legal recourse and remedies as outlined in the mortgage agreement.

Lien Theory State

What is a lien theory state?

What is the lien theory state definition?

Every state has its own laws and regulations governing mortgages, liens, and securities granted on a property.

Many wonder:

  • Is Florida a lien theory state?
  • Is Texas a lien theory state?
  • Is California a lien theory state?
  • Is Georgia a lien theory state?

In this section, we provide you with the list of the lien theory states to answer your questions.

Before we jump into the list, it’s important to note that in lien theory states, even though a person may purchase a real estate property using money borrowed from a bank or financial institution, the borrower will acquire the title to the property.

In other words, the deed to the real estate property will be registered into the borrower’s name for the entire life of the mortgage.

Which states are considered to be lien theory states?

The following states follow the lien theory principles:

  • Arkansas
  • Connecticut
  • Delaware
  • Florida
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Maine
  • New Mexico
  • New York
  • North Dakota
  • Ohio
  • New Jersey
  • Pennsylvania
  • Puerto Rico
  • South Carolina
  • Wisconsin

Lien Theory foreclosure proceedings 

In lien theory states, the foreclosure process is a non-judicial process.

In other words, foreclosures are handled and managed by a trustee.

In essence, the borrower may proceed with the foreclosure of the property without having to take a judicial recourse (or go to court).

As a result, the foreclosure proceedings will be handled by the trustee without the borrower or lender having to go to court during the process.

In many cases, the mortgage agreement will provide contractual rights to the lender to proceed with the sale of the property (power-of-sale clause).

Intermediary theory 

There are some states that follow mortgage laws that are sort of a hybrid of the lien theory and the title theory.

We call them the intermediary theory.

In essence, in intermediary states, the borrower will be given the title to the property just like in lien theory states.

However, the mortgage agreement or financing agreement will have an express provision where the lender can take back the title to the property in the event of the borrower’s default.

Here are the intermediary states:

  • Alabama
  • Hawaii
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Montana
  • New Hampshire
  • Oklahoma
  • Rhode Island
  • Vermont

Lien theory vs title theory

What is the difference between a lien theory and title theory?

Lien theory means that when a real estate property is purchased using financing, the borrower will acquire full ownership of the property by having the property deed registered in his or her name.

However, to secure the lender’s money and guarantee that the borrower will reimburse the mortgage, the lender will register the mortgage against the property.

In common lingo, we say that the lender places a lien on the property.

When the mortgage is paid off, the lien is extinguished.

If the borrower defaults, the lender can use the lien as a means to foreclose the property and get paid.

In title theory states, the lender retains the title to the property as security for the entire time the borrower has an outstanding mortgage.

In exchange, the lender grants the borrower the right of possession and use of the real estate property.

When the mortgage is paid off, the lender conveys the actual title to the property to the borrower.

However, if the borrower defaults on his or her payments, the lender has the title to the property and can take the necessary legal steps to foreclose the property.


A mortgage is a contractual agreement between a mortgagor (the person borrowing money) and the mortgagee (the person lending money).

Mortgage contracts will outline all the terms and conditions essential for the creditor when lending money to the borrower, such as:

  • Mortgage term
  • Interest rate
  • Default provisions
  • Security interest in the property title 

When the mortgage is signed, the lender will use this agreement as a security interest against the title of the property.

We refer to this as a voluntary lien as the borrower voluntarily agrees that the lender register a lien against the property using the mortgage.


So what does the Lien Theory mean?

Let’s look at a summary of our findings.

Lien Theory:

  • The lien theory means that the mortgage lender will have the mortgage agreement as legal security registered against the property and will not keep the title to the real estate property
  • There are two types of theories, the lien theory, and the title theory
  • The property deed will be registered in the name of the borrower during the term of the mortgage and the mortgage will be registered against the property as a lien
  • When the mortgage is paid off, the lien is removed and the borrower will own an unencumbered title to the property 
  • If the borrower defaults, the lender can use the lien to foreclose the borrower 
Acceleration clause 
Deed of Reconveyance 
Deed of trust 
Defeasance clause 
Due-on-encumbrance clause 
Due-on-sale clause
Habendum clause 
Negotiable instruments 
Power-of-sale clause 
Title insurance
Title Theory


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