Title vs. Mortgage
In real estate transactions,a number of commonly used terms exist, such as "title" and "mortgage." While title and mortgage have different meanings, each can provide evidence. Title pertains to the evidence of land ownership, while mortgage provides evidence of a mortgage lien.
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Two Meanings of Title
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Title has two meanings as it pertains to real property or real estate. One of the meanings of title is the ownership of property. A deed is the document used to transfer or prove title. The second meaning of title is the right or ownership of land in regards to the owner's bundle of rights. In real estate, the bundle of rights include right of possession, right to control the property, right to use the property, right to keep others off the property and right to transfer the property.
Mortgage
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A mortgage is a voluntary lien on real estate. The party borrowing the funds is the mortgagor. The lender is the mortgagee. When the mortgagor borrows the funds, he gives the mortgagee a note, called a mortgage. Homeowners who pay monthly house payments sometimes say they have a mortgage. Yet, that is technically incorrect. The lender holds the mortgage, not the borrower. Not all home loans involve mortgages. Some states use a system called deed of trust, instead of mortgage.
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Title Theory
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Mortgage types vary by state. In title theory states, the mortgagor retains equitable title yet gives legal title to the mortgagee during the duration of the loan. Equitable title is a legal interest a party has in real property under a deed or contract, with an eventual right to obtain full ownership after the party fulfills the agreement. Theoretically, the lender owns the property until the mortgagor repays the loan in full, yet allows the borrower possession and use of the property. Equitable title allows the lender to gain immediate possession to the property should the borrower default on the loan.
Lien Theory
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The borrower retains legal and equitable title in a lien theory state. In a lien theory state, the mortgagee has a lien on the property. The mortgage is the collateral for the loan. When the borrower defaults, the lender must go through formal foreclosure to obtain legal title to the property. Some states use an intermediate theory, which is a combination of the title theory and lien theory. In the intermediate theory, the lender theoretically holds title, yet must go through foreclosure to obtain legal title.
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