Which theory describes a mortgage as an encumbrance that can be removed upon loan repayment?

The lien theory describes a mortgage as an encumbrance on the property that can be removed once the loan is fully repaid. Under this theory, the borrower retains legal title to the property while the lender holds a lien as security for the loan. This means that the lender does not own the property; rather, they have a claim against it until the debt is satisfied.

When the borrower makes the final payment, the lien is released, allowing the borrower to have clear and unencumbered title to the property. This concept contrasts with title theory, where the lender may take legal title to the property while the borrower retains equitable interest. The equity and debt theories are less commonly referenced in the context of standard mortgage practices compared to the lien theory.