The pledging of a property by a debtor as collateral to secure a loan. Hypothecation doesn’t transfer possession or title (the debtor/ borrower retains ownership of the collateral), but it gives creditors/lenders the right to sell the collateral in the event of default. For example, a bank customer enters into a mortgage agreement, in which he pledges his house as collateral until the mortgage loan is paid off in full.
March 2, 2024
