Legal Definitions - title state

Definition: A title state is a state that follows the title theory in property law. This means that when a mortgage is taken out on a property, legal title of the property is transferred to the mortgagee (the lender) until the mortgage is paid off or foreclosed. Only a few states in the United States follow this theory.

Example: Let's say John wants to buy a house but doesn't have enough money to pay for it in full. He takes out a mortgage from a bank. In a title state, the bank would become the legal owner of the property until John pays off the mortgage. This means that if John were to default on his payments, the bank could foreclose on the property and take ownership.

Explanation: The example illustrates how a title state works in practice. The bank becomes the legal owner of the property until the mortgage is paid off, giving them more control over the property and the ability to foreclose if necessary. This is different from a lien theory state, where the borrower retains legal title of the property and the lender has a lien on the property until the mortgage is paid off.