What Is Hypothecation?
Hypothecation is pledging an asset as collateral for a loan without giving up possession of it. The borrower keeps and continues to use the property, but the lender gains the right to seize and sell it if the borrower defaults. A home mortgage is the most familiar example: the borrower lives in the house while it secures the loan.
How It Works
- The borrower retains possession and use of the asset
- The lender obtains a security interest or lien against it
- If the borrower defaults, the lender can foreclose or repossess and sell the collateral to satisfy the debt
Hypothecation in Florida Transactions
Hypothecation underlies most secured lending. In real estate, a mortgage hypothecates the property; in business and personal lending, a borrower may hypothecate equipment, vehicles, or investment accounts. The arrangement is documented in a security agreement or mortgage that defines the lender's rights, and the lien is typically recorded or perfected so it is enforceable against others.
Related Terms
- Collateral — The asset pledged through hypothecation
- Mortgage — Hypothecation of real property
- Lien — The security interest hypothecation creates
Barnes Walker
Barnes Walker's attorneys document and review secured loans, mortgages, and collateral arrangements for Florida borrowers and lenders. Request a legal inquiry for assistance.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC