There’s a common trope among people who have collateralized debt that, until the debt is cleared, they never truly own their property. For example, the bank holds the mortgage, and if mortgage payments aren’t made, the bank can seize the house. The trope says that the “pay to stay” nature of the loan means the bank truly owns the house, not the person who purchased it using their mortgage. Despite how common this trope is, it is incorrect. It fundamentally misunderstands the legal nature of ownership.
Ownership of property comes with certain rights. The owner has the right to exclude: they can rightfully prevent others from using their property without their permission. The owner has the right to use (or not use) their property; they may enjoy (or not enjoy) the property as they see fit. The owner has the right to dispose of the property: they may sell it, transfer it, or in some other way relinquish ownership of the property at their pleasure. Furthermore, the owner may enjoy the fruits of the property (including the disposal) at their pleasure. In short, the owner exercises control over the property.
That control, however, is not absolute. Ownership also comes with responsibilities. One may not use their property to interfere with the legal rights of another person; I cannot use my car to damage another person’s house. The owner is responsible for the safety of individuals within their property. And they are responsible for the upkeep of their property.
There is a whole body of law related to these rights and responsibilities. A broad overview of property law is beyond the scope of this piece. Rather, we will focus on these unique characteristics of ownership.
With the preliminaries out of the way, let us return to the question of this post: does the holder of a collateralized loan actually own the property used as collateral?
We can explore this question with the example of a mortgage, but the logic here applies to any collateralized loan. Does the bank own the home for which it holds the mortgage? With the unique characteristics of property ownership, we can see pretty clearly the answer to these questions is “no.” We can see that none of the rights or responsibilities of ownership apply to the bank.
First, the bank does not have the right to exclude anyone from the property. If one decides to have friends over, the bank has no say. Nor can the bank impose limitations the way a landlord can. If the occupant has a feud and bans an individual from their property, the bank cannot override them. Indeed, the bank never has to be consulted on any matters related to exclusion/inclusion; they simply do not have that right. So, we can cross “right to exclude” off the list.
Second, the bank has no right to use the property; The banker cannot call the owner and say “I need a house for a party this weekend. I am using yours since I own your mortgage.” Nor may they compel non-use in other ways; the bank may not prevent the owner from having weekend parties. The bank has no right to use the property whatsoever just because they hold the mortgage.
The third right discussed above, disposal, is where the confusion sets in. The bank does have a limited right of disposal. If one does not pay one’s mortgage, then the bank may seize the house and sell it to collect the debt. But the key aspects here are that the right of disposal is limited and the claim is tied to the contract, not the property. The bank can only seize the house and dispose of it if the owner fails to fulfil their end of the contract (that is, paying the mortgage). In other words, that right is limited to the non-performance of the owner. The bank may not wake up some day and decide to sell the house; they simply do not have that right. Nor, if the house is sold, is the bank entitled to any profit. They can only get what is owed to them. What the bank has extended to the mortgage customer is money, not the use of the home; that was never the bank’s to give away.
Note as well that the limited right to disposal is tied to the contract. In order to induce the bank to give the loan, the (future) owner has to offer them one of his rights, that right of disposal. But the (future) owner maintains the absolute right of disposal. And, disposing of the house does not absolve the owner of their obligation to the bank. Property rights transfer with the property. They are invested in the property, not the individuals.
Nor does the bank face any responsibilities of ownership. The bank is not obligated for upkeep; if a roof is damaged in a storm, the bank doesn’t pay for it. If the property harms someone, the bank faces no threats; the owner faces those legal obligations.
The bank does not own the house. They do not have any of the rights or responsibilities of the owner. What the bank does own is the mortgage (the contract). That contract entitles the bank to certain rights and responsibilities, as it does the other party (the homeowner) who signed it. But that mortgage is not ownership in the house itself.
We can extend the logic of property ownership here to areas beyond collateralized loans.
Another common trope is that since one must pay property taxes and the property can be seized if one does not, that one never truly owns one’s house. But using the same logic outlined in this post, we can see this trope is similarly incorrect. Again, the government possesses none of the rights or responsibilities of ownership. Governments do have some unique powers and limited rights, however. Governments can compel certain usages (e.g., easements) or non-usage (nuisance), enter property without permission (warrant searches), and even seize property (eminent domain) but again those rights are limited. They are limited by law (for instance by constitutional limitations on government powers), due process, and often require compensation by the government.
In the case of taxation, like with a mortgage, the government can only seize property following non-performance of an obligation (in this case, paying property taxes). It is a limited right. And, like a mortgage, the government cannot profit off the seizure (see Tyler v. Hennepin County. Chief Justice Roberts’s point in his opinion that this principle goes back to the Magna Carta is also instructional).
We can unbundle certain aspects of ownership in order to make better deals. But just because we unbundle one aspect of it doesn’t mean the whole bundle of rights disappears.
READER COMMENTS
Thomas L. Knapp
May 28 2026 at 8:41am
The limits of government power you describe are very similar to the limits of landlord power. Does that mean you “own” the apartment you rent?
Jon Murphy
May 28 2026 at 8:58am
They’re nothing alike.
rick shapiro
May 28 2026 at 9:45am
This discussion of ownership rights illustrates the fact that it is no longer possible to buy and truly own a new car; because the manufacturer retains the ability to interfere with the features of the car.
Jon Murphy
May 28 2026 at 10:12am
Ok but the point of this post is that claim is incorrect.
john hare
May 29 2026 at 4:50am
I think it is fair to suggest that the actual rights have been diluted over a period of time. Even if I have enough property for activity to be invisible to the outside world, there are many things I cannot do. From nuclear power plants to houses of ill repute to housing for the homeless, permission ranges from difficult to impossible.
Jon Murphy
May 29 2026 at 11:35am
It’s reasonable to discuss what restrictions are reasonable and what are not. But, since there will always be some sort of restriction (even in anarchy), then the lack of absolute control over property doesn’t imply a lack of ownership.
Knut P. Heen
May 29 2026 at 7:45am
I agree, but it is a simpler way to put it. What we mean with ownership in economics is the residual rights of control (i.e. all the rights that are not specifically promised to someone else through contract or taken away by law).
A collateralized debt contract transfer control from the owner to the creditor in the case of non-payment. The contract may even require you to buy insurance on the collateral. But the residual rights of control always remain with the owner.
With this definition, you are still the owner even though the residual rights are close to the empty set. Obviously, it may not feel like ownership when you are tied on both hands.
R R Schoettker
May 29 2026 at 10:45am
In the 21st century US it is clear to me, even if it isn’t to the author, that power ‘trumps’ so-called ‘law’ and in fact power determines not only the form of law but more importantly how it is interpreted and executed. To define ‘ownership control’ not as absolute but dependent on the impositions of outside restrictions as determined by State power through ‘law’ (or their privileged instruments, banks) is to make a mockery of the very concept of the term owner and to essentially prove the reverse of his claim.
Jon Murphy
May 29 2026 at 11:33am
Note I am making a common law argument, not a civil law argument.
nobody.really
May 31 2026 at 3:16am
Not sure what R R Schoettker is talking about.
Jon Murphy challenges a common misconception about what constitutes a transfer of property rights. In part, he argues that property rights are LARGER than some people think, and those larger rights do not generally transfer to either a lender or a government. But in part, he argues that property rights are SMALLER than some people imagine–and thus, the authority wielded by lenders or governments do not constitute an abrogation of property rights.
Libertarians sometimes harbor a naive idea that property rights are clear, simple, uncontested. Anyone who has labored through a semester-long class on property rights will be disabused of that notion. To begin, common-law property rights arose along with common-law nuisance–the right to sue your neighbor for unreasonably interferring with your use and enjoyment of your own land. What constitutes “unreasonable” interference is defined by society, and changes as society changes. Thus, property rights have always reflected social norms.
One of the great examples of this can be seen with the development of fence in/fence out duties. Does a farmer bear the burden of putting up fences to keep cattle out of his fields? Or does a rancher bear the burden of putting up fences to pen in his cattle? In North America, the answer typically depended on whether the economy of the local jurisdiction was dominated by ranching interests or farming interests–and as the economy changed, so did the local fence in/fence out duties.
If the social nature of property law has changed in the 21st century, I haven’t heard about it.
Craig
Jun 5 2026 at 1:14am
I would suggest that the best illustration here is that property rights are like a bundle of sticks. Many refer now to simply ‘getting’ a mortgage but the word to describe the borrower is mortgagor, the one giving the mortgage, in this case to the mortgagee, typically the bank of course. When you do that you are giving the bank one of the sticks of that bundle. You still have the other ones, indeed you can give another stick to a tenant creating a tenancy and in doing so you’re actually giving the tenant one of the sticks of that bundle for the duration of the tenancy, most notably the right to possess the premises.
As an aside in NJ the county commissioners are called freeholders which harkens to an era when the officer required the officer holder to be a freeholder of his estate, ie not own property subject to a mortgage, the name stuck and occasionally they may derisively be referred to as freeloaders.