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#979922 - 06/23/08 11:31 AM Hypothecation Agreement
terpsfan Offline
Diamond Poster

Registered: 02/12/07
Posts: 1091
We have a loan that for the construction of a primary residence and the property is in the name of their LLC. The DOT is being signed by the LLC but is a Hypothecation Agreement required? If not when is a hypothecation agreement required?

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Lending Compliance
#979940 - 06/23/08 11:45 AM Re: Hypothecation Agreement [Re: terpsfan]
Tom at HOME Offline
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Registered: 10/27/05
Posts: 1139
A Hypothecation Agreement is generally used when the owner of the collateral is not the obligor on the secured obligation. Bill agrees to use his property as collateral for Mary's loan. Bill is not liable on the debt but Bill's property is subject to foreclosure if Mary does not pay the obligation. Bill does not guarantee the payment but his property does.
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#980072 - 06/23/08 01:23 PM Re: Hypothecation Agreement [Re: Tom at HOME]
terpsfan Offline
Diamond Poster

Registered: 02/12/07
Posts: 1091
Would we still be secured if they only signed the deed of trust and did not sign a hypothecation agreement?

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#980153 - 06/23/08 02:09 PM Re: Hypothecation Agreement [Re: terpsfan]
Tom at HOME Offline
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Registered: 10/27/05
Posts: 1139
In your situation you should be fine, but that is what you discuss with your attroney. There is no third party the way you described it. There is just the LLC and the lender.
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#980247 - 06/23/08 03:20 PM Re: Hypothecation Agreement [Re: Tom at HOME]
terpsfan Offline
Diamond Poster

Registered: 02/12/07
Posts: 1091
well the borrowers are the members of the LLC but they are getting the loan as individuals. They signed the deed of trust as members of the LLC.

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#980372 - 06/23/08 05:02 PM Re: Hypothecation Agreement [Re: terpsfan]
Tom at HOME Offline
Diamond Poster

Registered: 10/27/05
Posts: 1139
Quote:
well the borrowers are the members of the LLC but they are getting the loan as individuals. They signed the deed of trust as members of the LLC.

So, they sign the note as individuals and not members, is that correct?
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#980564 - 06/24/08 08:57 AM Re: Hypothecation Agreement [Re: Tom at HOME]
terpsfan Offline
Diamond Poster

Registered: 02/12/07
Posts: 1091
yes does it make a difference if the members of the llc are the borrowers


Edited by terpsfan (06/24/08 09:41 AM)

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#981071 - 06/24/08 01:27 PM Re: Hypothecation Agreement [Re: terpsfan]
Tom at HOME Offline
Diamond Poster

Registered: 10/27/05
Posts: 1139
So, one entity is borrowing the money and another entity owns the collateral. That is when a hypothication agreement is used. But I don't think it is a fatal error just using the deed of trust/mortgage. That is what you ask your attorney.
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#981081 - 06/24/08 01:38 PM Re: Hypothecation Agreement [Re: Tom at HOME]
terpsfan Offline
Diamond Poster

Registered: 02/12/07
Posts: 1091
Thank you for your help. I thought we should have had one but would probably be fine but I wanted some input. I appreciate your opinion.

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#981097 - 06/24/08 01:48 PM Re: Hypothecation Agreement [Re: terpsfan]
Mint Julep Offline
Diamond Poster

Registered: 10/19/07
Posts: 1152
Loc: Tennessee
Your deed of trust may have hypothecation language built into it. You may wish to review it.
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#981426 - 06/24/08 06:01 PM Re: Hypothecation Agreement [Re: Mint Julep]
HRH Okie Banker Offline
Power Poster

Registered: 01/14/03
Posts: 2588
Loc: Oklahoma
Originally Posted By: Mint Julep
Your deed of trust may have hypothecation language built into it. You may wish to review it.


I agree with MJ. If your mortgage says "Securing Promissory Note dated of even date herewith, in the original principal sum of $10,000 to ABC Company" that should be the acknowledgement that the Mortgagor agrees to pledge this real estate to that loan.

As usual, you should check with your legal counsel for state requirements and required wording.
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