Finance

Arkansas is classified as a 'lien theory' state. This means that when a borrower takes out a mortgage:

ALegal title transfers to the lender until the loan is repaid

BThe lender holds only a lien on the property; the borrower retains title✓ Correct

CThe state holds title in trust for both the borrower and lender

DTitle is held by a neutral trustee pending loan payoff

Explanation

In a lien theory state like Arkansas, the borrower retains legal title. The mortgage creates a lien against the property as security for the debt — the lender does not hold title.

People Also Study

Key Terms to Know

Lien

A financial claim against a property that serves as security for a debt or obligation, giving the creditor the right to foreclose if unpaid.

Debt-to-Income Ratio (DTI)

A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.

Private Mortgage Insurance (PMI)

Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.

Deed of Trust

A security instrument used in many states instead of a mortgage, involving three parties: borrower (trustor), lender (beneficiary), and a neutral trustee.