Word of the day
To pledge specific real or personal property as security for an obligation without surrendering possession of it. For example, a long-term tenant could hypothecate the tenant’s leasehold rights as security for a loan. The lender could even use its rights in a receivable mortgage as collateral for some loan to the lender.
In a typical house purchase, the buyers pay a portion of the purchase price with their own cash and borrow the balance from a lending institution. The lender requires the buyers to hypothecate the property or pledge it as security for repayment of the loan, which repayment is accomplished by use of a mortgage or trust deed. The borrowers retain the rights of possession and control, and the lender secures an underlying equitable right in the pledged property.
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