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A mortgage theory under which legal title remains with the mortgagor until default. Upon default legal title passes to the mortgagee. The theory blends features of title theory and lien theory and determines when the mortgagee may assert possession or collect rents.
Ines Ibarra borrowed funds from Ivy Investments and granted a mortgage on her commercial building. The loan went into default after missed payments. Ivy Investments demanded possession and began collecting rents from tenants. Under the intermediate theory the mortgagee acquires legal title only after default and may then exercise possessory rights without completing foreclosure.
Iris Irons granted a mortgage on her office condominium to Insight Consulting to secure an expansion loan. Before any default Iris continued to occupy the space and collect subtenant rents. After default Insight sought to change the locks and lease the unit to a new tenant without foreclosure. The intermediate theory keeps legal title with the mortgagor until default occurs and therefore bars the mortgagee from taking possession beforehand.
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View caseUnder the intermediate theory the mortgagor holds legal title until default and the mortgagee obtains title and the right to possession only upon default. Title theory gives the mortgagee title from the outset. Lien theory keeps title with the mortgagor until foreclosure is completed.
Supporting sources
Yes. The mortgagee may demand possession once default occurs because legal title shifts at that moment. Foreclosure is still required to cut off the equity of redemption and complete the transfer of full ownership.
The two theories produce nearly identical results after default because both allow the mortgagee to take possession without first completing foreclosure. The only formal difference is that title passes at default rather than at execution of the mortgage.