Hypothecation Title Theory: The Parties Involved

If you have a number of debts which you want to turn into a mortgage on your home, then you might consider an hypothecation title theory. This is one of the two types of hypothecation which is commonly operated in the US, the other being Lien theory, where the borrower provides the lender with a lien, a note of promise to pay. With a title theory, this is rather different.

Borrower

In title theory, the borrower provides the lender with the title or deed of the property, which is held by them until the debt is completely paid off. This gives the lender a greater security than they could find with the lien method, and helps to reduce the interest rates on the mortgage.

Trustee

The trustee is given the title to the property, and holds it for both the lender and the borrower. Either of them can access the title, depending upon whether the mortgage is paid off, or the borrower defaults upon the mortgage. They act as a holder for the title, but are not involved with either the repayments or the handling of the property itself.

Lender

The lender gives the borrower a loan in return for the title deed to the property itself. They relinquish the title once the loan is repaid.

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