Mortgage Loan Originator Licensing Practice Test 2025 – Complete Exam Prep

The correct choice pertains to the Lien Theory, which is significant in the context of mortgage agreements. Under Lien Theory, when a borrower takes out a mortgage, they maintain both legal and equitable title to the property. This means that while the mortgage lender has a lien on the property to secure the debt, the borrower remains the legal owner and holds the right to use and occupy the property.

This approach contrasts with Title Theory, where the lender actually holds the title to the property until the mortgage is paid off. In Lien Theory states, the borrower retains the full rights to the property, and the lender's interest is simply a claim against the property rather than ownership.

Understanding this distinction is crucial for mortgage loan originators as it influences property rights, foreclosure processes, and the financial implications for borrowers in different states. Thus, Lien Theory plays an important role in determining the relationship between borrowers and lenders in mortgage transactions.