In Kentucky, which of the following best describes the lien theory as it applies to the mortgage instrument?
Correct Answer
B) The borrower retains legal title to the property, and the mortgage creates only a lien interest in favor of the lender
Kentucky follows the lien theory of mortgages. Under lien theory, the mortgagor (borrower) retains legal title to the property throughout the loan term. The mortgage instrument creates only a lien (security interest) in favor of the mortgagee (lender). The lender does not hold title — only a lien right to proceed against the property if the borrower defaults. This is why Kentucky requires judicial foreclosure to enforce that lien.
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Related Topics & Key Terms
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Related Concepts
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
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