Hypothecation: The Naked Title

When setting up a hypothecation mortgage, it is common in some states to use a deed of trust. This is a deed that confirms the agreement between the two parties (lender and borrower) and the participation of the third party. This deed serves as a grant of power towards the third party, allowing that party to hold the title to the property for as long as it is mortgaged.

The Naked Title

The power over the title that the third party has is often known as the "naked title," or the bare legal title. This title effectively gives the third party, also known as the trustee, control of the property. The trustee holds the naked title for the property during the time that the hypothecation mortgage is being paid off.

Aspects of the Naked Title

During the time of the hypothecation mortgage, the trustee holds equal right to the property with the borrower, although the latter may still be considered the owner of the property. The trustee holds the equal rights of the property on behalf of the lender and may either reconvey the property to the borrower at the end of the mortgage or sell the property through a power-of-sale. It is the naked title that gives the trustee the right to sell.

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