Generally, a lender uses a hypothecation agreement when the owner of the collateral is not the obligor on the secured obligation. For instance, suppose Tom pledges his home as collateral for his fiancée Mary's construction loan on her home.

What is the purpose of hypothecation agreement?

A hypothecation agreement allows a borrower to use an asset's value to give a money lender extra security in the event that they default on a loan. Other agreements like mortgage deeds or deeds of trust offer a similar kind of security, but the borrower does not technically list an asset as a piece of collateral.

How do you use a hypothecation agreement?

Hypothecation deed is a legal document that establishes contractual relations between the lender and the borrower wherein the lender agrees to grant a loan amount to the borrower in return for movable asset provided as security as well as the lenders right to seize the possession of such security if the borrower ...