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In lien theory, the borrower retains both legal and equitable title to the property. This principle means that while the borrower is allowed to occupy and use the property, the lender has a lien against the property as security for the loan. The lender does not hold legal title; instead, they have a legal claim or interest in the property through the lien that ensures the loan is repaid.

The distinction in lien theory is significant as it contrasts with title theory, where the lender holds the legal title until the debt is paid in full. In lien theory, the borrower has the right to sell, mortgage, or otherwise dispose of the property, provided they fulfill their obligations to the lender. This approach emphasizes the borrower's continued ownership and control over the property, even as they have an outstanding mortgage obligation.