@Rich Hupper
What I suggested above was to simply convey a concept of shared title interests, it's not really a first-second position but shared, sorry to confuse you, it was the short version to illustrate 2 parties having legal rights in title. "Mortgage" actually means pledge. All notes secured by real estate are a mortgage, real estate is pledged as collateral. A mortgage is a loan secured by real estate under two theories at law, being secured as a lien or by taking title allowing the borrower/owner to benefit hold title subject to a lien and enjoy the bundle of rights. A mortgage in title theory sets title in a Trustee under the deed of trust, this still provides the owner/borrower with rights to benefit from the bundle of ownership rights.
Lien theory states; A lender is in a lien position, the borrower grants a specific lien, the borrower takes title subject to the lien, this is accomplished with a deed of trust. The bundle of rights are taken subject to the lien held by the lender. Before title is conveyed by that owner, the lender will insist their lien be paid off, this is part of the foundation of the due on sale clause. Review the Basics Course as to types of Specific Liens that encumber title.
Title theory states; A buyer conveys legal title to a third party trustee who holds title in trust. This trust agreement or deed of trust only allows legal title to be conveyed to the lender/beneficiary and only in the default of the borrower. The trustee has no other interest in the legal title, such as possession, power of sale, rights to benefit from that title interest so long as the borrower meets the agreements of the note and terms of the mortgage. It is AS IF a borrower were to hold a primary or secondary interest with a lender being a primary or secondary holder, not really who is on first, but shared and only to the extent of the terms of the security agreement.
There is no percentage of legal title being held under either theory. If a borrower defaults under a mortgage in title theory, the lender calls the obligation due and if not paid, conveys full title to the lender under foreclosure proceedings. In lien theory, default grants the power of sale by the trustee to payoff the lien.
A note is evidence of a debt. A mortgage is a secured debt. In title theory states the note or evidence of the debt is made together with the security agreement, deed of trust sets the title in trust. In a lien theory state, a deed of trust is a lien against title held in trust.
There can be many issues that arise from either theory, one misconception about title theory is that a lender can end up with legal title after a default and simply own the property with all the bundle of rights. While technically true, this is clouded by laws of equity.
I'm not speaking so much about equitable interests (but there are) but to "courts of equity" where a lender may be held to a degree of fairness. No lender is going to end up owning a million dollar property when they are only owed ten thousand dollars, nor will the be allowed to keep greater proceeds from any sale over what they were legally owed. The foreclosure system is not a profit center for a lender, the concept is for a lender to be indemnified or made whole.
I won't go into foreclosures, but laws of equity as well as homestead laws and redemption rights also play on a lender's right to take title and possession. Is it equitable for a lender who extended a cash loan to take a property and evade the equitable interests held by a borrower/owner, by not selling the property allowing the borrower to obtain excess equity of what the lender was owed? No. In courts of equity, the lender is to be made whole, not rich. This only applies to loans funded with cash or by other assets.
Equity loans, where we have seller financing, the lender loans equity based on a stated sale price. Upon default of an installment contract the contract to purchase becomes void, ineffective and inoperable. The sale is terminated, that then sets aside amounts owing sense that amount is based on an agreed price in that sale. The legal title reverts back to the seller as if the sale had never taken place. That also means that lender is not entitled to any deficiency judgment of equity financed based on a sale that was terminated. This comes from uniform laws concerning installment sales, but some courts may hold the contract at a higher standard as a breach of contract, but not many.
This is about as deep as any investor or Realtor needs to go as to theory, it gets more complicated, but for those who aren't in loan servicing or in law, we just don't need to dig into theory.
Hope this longer version helped. You can pick up more in my course, as to different aspects on the investor level, what holds us to the due on sale provisions, lender's rights to protect collateral, borrower's obligations, equity interests, etc.
My morning coffee post, LOL :)