Hypothecate Law and Legal Definition

Hypothecate means to pledge something as security for a loan, without actual delivery of the item pledged. For example, a car may be collateral for a car loan, although possession remains with the driver.

Though title to the property is not transferred, hypothecation creates a right by the creditor to liquidate the property to satisfy the debt in the event of default. If the debt isn't paid, the creditor may have the property seized to satisfy the debt, although the person hypothecating the property is not personally liable if the collateral doesn't pay off the debt.