In a Title Theory State, what happens when a borrower defaults on a loan?

In a Title Theory State, the lender holds the title to the property until the borrower repays the loan in full. Therefore, when a borrower defaults on a loan, the lender has the right to initiate foreclosure without needing to go through the court system. This streamlined process is a legal advantage for lenders in Title Theory States, as it can lead to a faster resolution in the event of default. The nature of title theory gives the lender an automatic claim to the property, allowing direct action to take possession of it without the delays often associated with judicial foreclosure processes.

The other options do not align with the principles of Title Theory. For instance, in many cases, the borrower may desire to negotiate new terms, but this is not a guaranteed outcome simply due to default. Additionally, the lender does not need to go to court for foreclosure in this context, distinguishing this state’s approach to property loans from others that may require legal proceedings.