In one state, a mortgagee holds legal title to real property offered as collateral for a loan, and the mortgagor retains the rights of possession and use. If the borrower defaults, the lender is entitled to immediate possession and rents. This state can be BEST characterized as what kind of state?

A)

Lien theory

B)

Title theory

C)

Mortgage theory

D)

Intermediate theory

Answer: A. Lien theory

Explanation: Lien Theory simply refers to the concept whereby a property (most especially mortgage) serves as collateral for a loan. Here, the mortgage serves as the Lien on the property, and this is what the lender (mortgagee) acquires, while the borrower (mortgagor) retains the deed and rights of the property.

The lender (mortgagee) can start foreclosure procedure on the property if the borrower (mortgagor) defaults in the payment of the loan.

A state where this theory is practiced is called a Lien Theory State.