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

The distinction between lien theory states and title theory states primarily revolves around who holds the title of the property during the mortgage process. In lien theory states, the property owner retains legal title to the property while the lender holds a lien against it as security for the loan. This means that the borrower has ownership rights and responsibilities of the property, even though the lender has a claim in the event of default.

In contrast, in title theory states, the lender holds the title to the property until the mortgage is paid off. This arrangement can give the lender certain rights over the property that are not present in lien theory states. The key takeaway is that the ownership of the title remains with the property owner in lien theory states, which directly corresponds to the answer choice that indicates the property owner holds the title.

This fundamental difference in title retention is essential for understanding how mortgages and foreclosures operate in different jurisdictions. The other answer choices either misrepresent the nature of how titles are held or address aspects unrelated to the core distinction between these two legal theories.