Also known as: title-theory jurisdiction · title theory
Written by attorneys · grounded in primary & secondary sources — see below
A mortgage doctrine under which the mortgagee receives legal title to the mortgaged property at the time the mortgage is executed. The mortgagor retains only an equity of redemption. Default allows the mortgagee to assert immediate rights to possession and rents without first completing foreclosure.
Timothy Tang borrowed funds from Talon Security and granted a mortgage on his commercial building. After Tang missed several payments, Talon Security notified Tang that it held legal title and directed the building's tenant to pay rent directly to the lender. Talon Security then changed the locks and took physical control without filing a foreclosure action.
Tessa Takahashi granted a mortgage on her office condominium to Titan Industries to secure a business loan. When Takahashi defaulted after losing a major client, Titan Industries asserted ownership of the property and instructed the anchor tenant to remit future rents to the lender. Takahashi remained in physical possession but could no longer collect the income stream.
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The mortgagee may assert immediate possession of the property and collect rents without completing foreclosure. The mortgagor holds only an equity of redemption that is extinguished by default.
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Under title theory the mortgagee already holds legal title and may take possession at once. Under lien theory the mortgagor retains legal title and the mortgagee must complete foreclosure before obtaining possession or rents.
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The mortgage document may recite conveyance language consistent with title theory or security language consistent with lien theory. Courts examine the entire instrument and state law to determine which theory governs the parties' rights.
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