The borrower owns the property, in accordance with lien theory. Unlike a Deed of Trust, a Mortgage is recorded in the official record and acts as a lien on the property till the debt is repaid. A mortgage grants a homeowner both legal and equitable title. A judicial foreclosure normally begins with the submission of a Lis Pendens, which serves as a lawsuit against the borrower. The borrower receives a notice of complaint via direct service, mail, or newspaper publication. In addition, the borrower has the right to be to be present in the hiring of the court. In case the court considers the debt real by default, it will enter a judgement for the full amount owing, including court expenses.
Lenders of mortgages or banks are never allowed to retain ownership of real estate, according to lien theory. On the other side, the property is subject to a lien by the mortgage lender. In these states, the borrower keeps the deed, while the lender uses a mortgage to protect the property. The lien is removed when the obligation is fully repaid. When the debt is paid in full, the lien is released. When a mortgage is outstanding, the buyer in a state with a lien theory retains ownership of the property. The mortgage creates a lien on the property and the buyer commits to make all payments to the lender, but ownership of the property remains with the buyer. Once all loan payments have been made, the lender’s lien is released. Due to the fact that the buyer, not the lender, holds title to the property, foreclosure procedures in a state where the lien theory governs may be more challenging for the lender than in a state where the title theory governs.
When there is non-payment of the debt, the existence of a lien safeguards the interests of the lenders. Because it is implicit, loans with collateral present less risk to the lender and may result in reduced interest rates for the borrowers. For instance, it is crucial for a person to examine all liens that are present on a certain automobile before making a purchase. Additionally, the buyer runs the danger of having the car repossessed by the lender if there is an unpaid obligation on that specific vehicle.
