Common Joe 'n Jane Real Estate Wiki

Real estate exam prep made easy! Dive into our wiki for key concepts and study materials tailored for success in your exams.

<--Back to Wiki Home
Bite sized definition logo.

Define Title Theory State in Real Estate

Title Theory State: 

A title theory state is a place where, when you borrow money to buy a house, the lender (the one who lends the money) gets the legal ownership of the property until you pay back the loan. This means that while you live in the house and make payments, the lender holds the title to the property, and you get full ownership only after you've paid off the loan completely.


In a title theory state, when Susan takes out a mortgage to buy a house, the bank holds the legal title to the property. Susan lives in the house, making monthly payments to the bank. After several years, Susan pays off the mortgage in full. At this point, the bank transfers the legal title to Susan, making her the full owner of the property.

Illustration of a diver exploring the depths of the ocean. This image represents in-depth further learning in various real estate dictionary and glossary terms on our website.
"A Deep Dive for Real Estate Agents"

A few more points to know about title theory states:

Lien theory states: The alternative to title theory states is lien theory states. In lien theory states, the borrower (the one who takes the loan) retains the legal title to the property, while the lender has a lien on the property as security for the loan. In simple terms, the borrower owns the property, but the lender has the right to take it if the borrower doesn't pay back the loan.

Not in every state: Title theory and lien theory states are determined by state laws. Some states follow the title theory, while others follow the lien theory. There are also a few states known as intermediate theory states, where the laws combine aspects of both title and lien theory states.

Foreclosure process: The foreclosure process may differ between title theory and lien theory states. In title theory states, since the lender holds the legal title, the foreclosure process can be quicker and may not require going through the court system (non-judicial foreclosure). On the other hand, lien theory states often require a judicial foreclosure, where the lender must go through the court system to foreclose on the property.

Deed of trust vs. mortgage: In title theory states, the loan transaction is often secured with a deed of trust instead of a mortgage. A deed of trust involves three parties: the borrower, the lender, and a trustee. The trustee holds the legal title to the property on behalf of the lender until the loan is paid off. In lien theory states, a mortgage is used, and the borrower holds the legal title while the lender has a lien on the property.

In summary, title theory states are places where the lender holds the legal title to a property until the borrower pays off the loan. This concept is not present in every state, as some follow lien theory, while others have a mix of both. The foreclosure process and the way loans are secured also differ between title theory and lien theory states. It's essential to understand the laws in the state where you practice real estate to navigate these differences effectively.
Illustration of Dumb Ox mascot.

"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"

In a land where houses gleam,
And people need to borrow,
Title theory states, it seems,
Have rules you need to follow.

When you buy a house, it's true,
And take a loan to pay,
The lender, in this land so new,
Holds the title, day by day.

You live there, making payments fine,
While the lender owns the ground,
And when you've paid the last dime,
Your full ownership is found.

Title theory states, you see,
Keep the lender safe and sound,
Until you pay the debt that's free,
And then your home is found.

Invest in Your Future.

Buy Access Now!