A security or right which is given to a creditor over a debtor’s property without transfer of possession or title. The creditor has a preferential right to have recourse to the hypothecated property in order to redeem his debt, by selling it and paying himself out of the proceeds. Likewise, if a purchaser does default, a seller can become the owner of the traded asset again. In Roman and Scots law, hypothec refers to a mortgage that constitutes a legal right over a debtor’s property without having it passed to the creditor nor turned into his possession.
Banking
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