What does a hypothecation clause secure?

A hypothecation clause secures the lender's claim to real property as collateral. This clause is included in a mortgage agreement, allowing the borrower (typically the property owner) to retain possession of the property while the lender holds a lien against the property. This means that, should the borrower default on the loan, the lender has the legal right to take possession of the property to satisfy the outstanding debt.

By securing the loan with real property, the lender minimizes their risk, ensuring that they have a tangible asset that can be used to recover funds. This is a fundamental aspect of mortgage lending, distinguishing secured loans from unsecured loans, where there is no collateral involved.

The other options pertain to different aspects of real estate transactions. The rights of a buyer to occupy the property can be detailed in the purchase agreement, but these rights are not specifically addressed by a hypothecation clause. The seller's ability to sell the property relates to ownership rights, which are separate from the funding provided by a lender, and the tenant's rights in a lease agreement do not involve hypothecation, as it primarily deals with ownership and security interests.