A deed of hypothecation is a legal document expressing a transaction between a lender and borrowerin which the borrower offers a movable asset as collateral to secure a loan. Hypothecation of a movable asset does not involve giving up ownership rights like title or possession. However, a deed of hypothecation grants the lender a right to seize the asset when the borrower’s fails to meet the terms of the deed. A deed of hypothecation is required to fix the terms upon which the borrower and lender agree to the hypothecation of a movable asset against a loan. The deed ensures that the parties are aware of their rights and liabilities and have a document which can be enforced in a court of law.
The deed ensures that the parties are aware of their rights and liabilities and have a document which can be enforced in a court of law. However, a deed of hypothecation grants the lender a right to seize the asset when the borrower’s fails to meet the terms of the deed. Investments/stocks can be hypothecated. The hypothecation deed is an agreement which contains standard features and rules. Definitions, Insurance (to ensure good condition of the asset), Inspection rules (giving lender the right to inspect the asset as per agreed terms), rights and remedies of each party [in case of any default], security details marked for hypothecation, sale realizations, insurance proceeds, liability of each party, jurisdiction prevailing, marking of the assets etc. This deed protects the rights of both the parties to the contract.
Features of Deed of Hypothecation:
1.Details of the parties:Details of parties to the hypothecation deed must be mentioned specifically.
2.Collateral: details of the asset given as a collateral for hypothecation must be mentioned in the deed. This collateral may be in the form of shares/ investments.
3.Terms and condition:Those terms and conditions upon which the loan has been advanced by the lender is to be specified under hypothecation deed.
4.Recitals: Recitals regarding ownership of the movable asset by the borrower & should also lay down the respective rights and liabilities of both the parties.
Passport photo of all parties.
PAN card of all parties.
Aadhar card of all parties.
Utility bill of Electricity or Telephone.
Valid Address Proof of all the parties.
Driving Licence of all the parties.
Terms and Conditions
Terms and Conditions between the parties.
Other documents will be intimated through e-mail.
Hypothecation is the practice in which a debtor pledges collateral to secure a debt or as a pre-condition to a debt, or a third party pledges collateral for the debtor. A letter of hypothecation is the instrument for carrying out the pledge.
In case of Pledge, the property of borrower/debtor is under the custody of Lender (banks or finance company), on the other hand, in case of hypothecation, the possession of property retains with the borrower.
Hypothecation is the practice where you pledge any asset to a bank when applying for a loan. The bank keeps the car as collateral or security until you pay it off. Your bank technically holds your car during your loan's tenure, though you physically have possession of it, therefore in case of hypothecation of vehicle, that asset is car or any other vehicle.
In case of hypothecation, a charge over movable properties like goods, raw materials, and goods-in-process is created. Hypothecation as-a charge against property for an amount where neither ownership nor possession is passed to the creditor.
The hypothecation letter enables an accepting bank to sell the shipment if the buyer does not accept or pay the bill of exchange. A bank or lender is authorized to seize and sell the documented item if default occurs
Written agreement, which authorizes a bank or lender to repossess and sell the pledged item in case of a default. In international trade, a letter of hypothecation enables an accepting bank to sell the shipment in case of the non-acceptance or non-payment of the associated bill of exchange by the buyer.