Mortgage Payment

You may have one, but do you really know what it is?
Mortgages, Lien Theory & Title Theory

             A mortgage is a voluntary lien on property.  If you are the buyer or borrower on the property, you will be the mortgagor. The lender is referred to as the mortgagee. In a title theory state the borrower gives the legal title to designated individual specified by the mortgagee, yet retains equitable title.  What this equitable title basically means; when you meet the demands of the mortgage (such as full payment to the lender), the borrower is entitled to legal title.  So, in theory, until the debt is paid, the lender essentially owns the property, while allowing the mortgagor possession and use of the property.  Because the lender has legal title to the property, they have the right to immediate possession of the property or its revenues, should the borrower default.

            Not all states in the United States are title theory states, some (such as Arizona) are lien theory states. In a lien theory state, the borrower retains both the legal and equitable title on the property, with the loan being a lien against the property, to secure the debt. Should the borrower default on the loan, the lender must go through formal foreclosure proceedings to obtain legal title. The formal proceedings normally include placing the property for sale on a public auction, to pay off the balance of the debt. Some states allow the defaulting buyer to buy back the property within a specific timeframe after the completion of the auction.
            Aside from title theory and lien theory, some states have intermediate theory.  This is similar to title theory, yet requires foreclosure to obtain the title from a defaulting borrower.