Browse Proptionary encyclopedia

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The act of using property as collateral to secure a mortgage.


To hypothecate means to use a property as collateral for securing a mortgage without exchanging the property’s title or ownership. When a borrower agrees to a mortgage, a lender secures its financial investment with a voluntary lien on the borrower’s property; a lien gives a lender legal interest in the property and allow the lender to foreclose on that property in the event that the borrower defaults on mortgage payments.

The statute of limitations for loans is four years. This means if a borrower hasn’t made a mortgage payment in four years without action from the lender, a lender can no longer go after that borrower for defaulted debt.

Loans being secured through Hypothecation

One way to secure a loan through the process of hypothecation I can be with the use of a promissory note. This is a document which shows a borrower’s debt and his or her promise to pay it back. The promissory note is legal documentation that a borrower has borrowed money and establishes borrower and lender obligations such as how much money is owed and it is required to be paid by.

The loan is hypothecated by real estate, which acts as security for the lender. Hypothecation, in the case of real estate means the property will be foreclosed and given to the original lender for whom the debt is not paid. The equity and property act as security in the event the loan goes into default for too long of a period.

A foreclosure can occur as soon as 90 days after the borrower has failed to make payments. In periods of slow economic growth and high foreclosure rates lenders will generally take longer than 90 days to go through the full foreclosure process. Hypothecation is a pledge with security without giving title or possession of property.

A mortgage that is loaned to a borrower is secured through a deed of trust. The deed indicates the debt on the property.