Legal Definitions - title theory

Definition: Title theory is a concept in property law that states that when a mortgage is taken out on a property, legal ownership of the property is transferred to the mortgagee (the lender) until the mortgage is paid off or foreclosed. This is only applicable in a few American states, known as title states, title jurisdictions, or title-theory jurisdictions.

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, which becomes the mortgagee. According to title theory, legal ownership of the house is transferred to the bank until John pays off the mortgage or the bank forecloses on the property.

Explanation: This example illustrates how title theory works in practice. The bank becomes the legal owner of the property until the mortgage is paid off or foreclosed. This means that if John defaults on his mortgage payments, the bank has the right to foreclose on the property and take possession of it. Title theory is different from lien theory, which is another concept in property law that states that a mortgage only creates a lien on the property, rather than transferring legal ownership to the mortgagee.