Under a security deed, the lender is automatically able to foreclose or sell the property when the borrower defaults. It is typically much faster under a security deed than a mortgage. The foreclosure process is one of the biggest differences between a security deed and a mortgage. California, Georgia, and Idaho are a few examples of title theory states. Mortgages, in title theory states, essentially achieve results similar to a security deed. mortgage holder) until all loan payments have been fulfilled. When a mortgage is signed, the borrower gives the title to the lender (i.e. On the other hand, the buyer does not own the title to the property in a title theory state. Examples of lien theory states include: Arkansas, Connecticut, Maine, and Wisconsin. The lien is removed once all loan payments have been completed.
A mortgage essentially secures the lender's rights and places a lien against the title of the property. The buyer, in a lien theory state, owns the deed to the property during the term of their mortgage. We must first understand the difference between a lien theory state and a title theory state. During that time, he or she keeps exclusive right of possession and the right of redemption, meaning that the lender cannot sell the property's legal title unless the borrower defaults or they agree on the sale.ĭepending on the state, a mortgage can be understood in two different ways. The borrower makes payments, and until the payments conclude, he or she retains only the equitable right (a legal right guaranteed by equity, not from another legal source). It provides a full and direct legal title transfer from the borrower to the lender, leaving the equitable title with the borrower. In some cases, it's known as a Deed to Secure Debt, Warranty Deed, or even a Loan Deed. Having a basic understanding of what's involved can help you protect yourself and your real estate.Ī Security Deed can have many names. Also known as a Warranty Deed, it provides a full, direct legal title transfer from the borrower to the lender, leaving the equitable title with the borrower.īefore you get financing for your home, you need to make sure you know the difference between a Security Deed and a mortgage.
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