What is the difference between a title theory state and a lien theory state?

Answer 1

In a title theory state, the grantor of the mortgage actually takes title to your house, whereas in a lien theory state, the grantor just retains a lien. The real world effect is that in a title theory state, you can be evicted much faster, because you technically do not own the home. Additionally, you are more likely to be held liable for economic waste (e.g. bulldozing an apartment complex to build a single-family residence), because the bank actually owns what you just bulldozed. As the law has progressed, title theory states have become less common.