In which type of state is the property considered security for the underlying loan?

In a lien theory state, the property is treated as security for the underlying loan. In this context, the borrower retains legal title to the property, while the lender has a lien on the property as collateral until the loan is fully repaid. This means that the lender has a legal interest in the property but does not possess it; rather, they have the right to foreclose in the event of default on the loan.

This framework contrasts with other theories regarding property and loan relationships. For instance, in title theory states, the lender actually holds the title to the property until the mortgage is paid off. In equity theory states, the focus is primarily on the borrower's ownership interest in the property, and liability theory states often delve deeper into the responsibilities that different parties have concerning the loan and property.

Understanding these distinctions is crucial for professionals dealing with real estate whether in terms of mortgage agreements, foreclosures, or title search and examination. Lien theory is particularly relevant as it emphasizes the borrower's continued ownership and the lender's security interest.