Title Theory

Fewer than 20 states subscribe to this concept of mortgages. In states with title theory, a mortgage is assumed to represent an actual conveyance of title to the mortgagee, and the document is usually called a "mortgage deed." This can be seen as very similar to the early mortgages in which the mortgagee owned legal title and could take possession or collect revenues from the property during the term of the loan. All of the title theory states have adopted one or several approaches to eliminating abuses in such mortgages.

One alternative is to employ what is called intermediate title theory. Although this approach requires formal court action to rescind the borrower's legal rights to the property, the mortgagee can assume possession of the property between the time of default and the sheriffs sale. While this system protects the lender against any property, it also protects the mortgagor from eviction without the legal process.

Another approach requires that foreclosure proceedings must be held, as in lien theory states. This requirement makes these states' mortgage laws equal in borrower protection to that of lien theory states' requirements. The only difference is in the formal wording of the instrument.

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