Loan instruments
Title theory
Legal title passes to the lender until the debt is repaid
The borrower holds equitable title and possession while the lender holds legal title as security, which returns to the borrower on payoff. The practical effect is on how quickly a lender can act on default.
How the exam asks about it
Which theory a state follows is a state-law fact; that the two exist and why they differ is the national-portion point.
Related terms
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