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The collateral is the paper?? Holy shit
This bit is slightly less removed from reality than the average SovCit rant. The collateral is the house, but the piece of paper (deed/lien) says who legally owns the house. Without that documentation, the bank wouldn't accept the fact that a house merely exists, as collateral for the loan.
But like any good SovCit, they take the grain of truth and try to fill a canyon with it.
It’s even a bit more esoteric than that. Depending on the jurisdiction even the deed is worthless unless you registered it and/or gave adequate notice to anyone with a current or future interest in the property (newspaper announcement is a classic example). This is one of the many reasons that a County Register of Deeds is so important.