Title Theory

• The title theory of mortgages prevents the homeowner from holding the title, or deed, to the home until the mortgage loan is completely paid off. This is because the value of the home is used as a security for the lender in case the homeowners default on mortgage payments.
  
  

Documents

• When a home is purchased using a mortgage loan, two important documents must be signed and filed on record. The first is the deed. The deed states the name of the sellers and buyers and the purchase price of the property. The mortgage states the name of the buyers and the lender, or bank, and the amount of the mortgage loan. When these documents are signed, the mortgage company holds them as a security until the loan is completely paid off. At this time, the home owners will receive the deed to the property.
  
  

Lien Theory

• Some states use a different theory, know as the lien theory, for mortgages. Under this theory, the lender does not hold the deed, but rather places a lien on the property until the mortgage is paid off. Once the final payment is received, the lien is removed.