Legal Definitions - lien state

Definition: A lien state is a state that follows the lien theory, which means that a mortgage is considered a lien on the property. In this theory, the mortgagee (lender) only acquires a lien on the property, and the mortgagor (borrower) retains both legal and equitable title unless a valid foreclosure occurs. Most American states have adopted this theory.

Example: Let's say John wants to buy a house, but he doesn't have enough money to pay for it in full. He decides to take out a mortgage from a bank. In a lien state, the bank will only have a lien on the property, which means that John will still have legal and equitable title to the house. However, if John fails to make his mortgage payments, the bank can foreclose on the property and take ownership.

This example illustrates how a lien state works. The mortgage is considered a lien on the property, but the borrower still has ownership rights until a valid foreclosure occurs.