What is Hypothecated Real Estate?

Hypothecated real estate refers to a property that has been pledged as collateral for a loan without transferring possession or ownership to the lender. The borrower retains full use of the property, but the lender holds a legal right to seize or foreclose on it if the borrower defaults.

Key Features:

• Ownership stays with the borrower
• Collateral is pledged through a legal agreement (e.g., mortgage or deed of trust)
• Lender has a lien on the property
• Common in mortgages, where real estate is hypothecated to secure repayment

Example:

If you take out a mortgage to buy an apartment building, the lender doesn’t own the property, but it is hypothecated. If you default, they can foreclose and sell the property to recover the loan amount.

This is different from a pledge, where the lender might take possession of the collateral, or outright collateralization, where ownership is transferred until repayment.