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LSDefine
Simple English definitions for legal terms
lien theory
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A quick definition of lien theory:
Lien theory: This is the idea that a mortgage is like a lien, which means that the lender only has a claim on the property and the borrower still owns it unless the lender forecloses. Most states in America follow this theory. The opposite is title theory, where the lender actually takes legal ownership of the property until the loan is paid off.
A more thorough explanation:
Definition: Lien theory is the idea that a mortgage is like a lien, which means that the lender only has a claim on the property and the borrower still owns the property unless the lender forecloses on it. This theory is adopted by most American states.
Example: Let's say you want to buy a house, but you don't have enough money to pay for it all at once. You can get a mortgage from a bank, which means the bank will lend you the money to buy the house. However, the bank will also have a claim on the house until you pay back the loan. This claim is like a lien, and it means that the bank can foreclose on the house if you don't make your mortgage payments.
This example illustrates how lien theory works in practice. The bank doesn't own the house, but it has a claim on it until the borrower pays back the loan. If the borrower defaults on the loan, the bank can foreclose on the house and take ownership of it.