HYPOTHECATION

An agreement whereby someone puts up collateral to secure the debt of another. This means that someone may agree that a piece of real estate will be collateral for a debt. 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. Thus the property is liable for the debt, not the person guaranteeing the debt.

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