Lien State Law and Legal Definition
Lien State is a state or jurisdiction which follows the lien theory. Lien theory refers to the concept that mortgage is a form of lien on the property, so the mortgagee acquires only a lien on the property and the mortgagor retains both legal and equitable title unless a valid foreclosure occurs.
In a Lien State, the deed stays with the borrower (mortgagor), and the lender (mortgagee) places a lien on the property using the mortgage instrument. Most of the American states have adopted this theory.
Lien theory states differ from title theory states in that they treat a mortgage as conveying no title to the mortgagee but as creating only the right to sell the property to satisfy the secured debt in the event of default. Under the lien theory the mortgagor retains both legal and equitable title unless a valid foreclosure occurs.[Canada Life Assur. Co. v. LaPeter, 563 F.3d 837, 846 (9th Cir. 2009)]
In "lien theory" states, the borrower holds title to the land and the mortgagee has a lien on the property.[ O'Neal Steel, Inc. v. E B Inc. (In re Millette), 186 F.3d 638, 644 (5th Cir. 1999)]