Hypothecation means that the lender is given a lien against the borrower's collateral property and, if default occurs, the lender can foreclose proceedings to recover his interest.

• A. Means that the lender is given a lien against the borrower's collateral property and if default occurs, the lender can file foreclosure proceedings in order to recover his interest in the property
• B. The borrower has no collateral
• C. The loan is unsecured
• D. The lender has no remedy for default

Answer: (A)

Hypothecation involves the borrower pledging collateral to secure a loan, while still keeping ownership and possession of that collateral. The lender obtains a lien on the property, giving them a security interest. If the borrower defaults, the lender can proceed with foreclosure or a sale to recover what is owed. This is why the statement describes a lien and the right to foreclose as the lender’s remedy. The other options miss that hypothecation involves a secured loan with collateral and a remedy for default—the borrower does have collateral, the loan is secured, and the lender does have a default remedy.