Short answer
Hypothecate means to subject real property to an encumbrance known as a hypothec as security when borrowing money.
Crudely, a hypothec is an alternative to what is used as a mortgage in common law countries (descended from the law of England), in countries with laws based directly or indirectly upon the French civil code and Roman property law concepts called "civil law countries". But a hypothec is conceptually quite different than a mortgage, even though it is used for the same purposes. There are also material practical differences between how a hypothec and a mortgage work in non-standard real estate financing transactions.
A hypothec is, generally speaking, less flexible than a mortgage. This matters in non-plain vanilla real estate transactions (e.g. a mortgage entered into only by one of multiple co-owners of real estate, or a mortgage from someone who only owns a life estate or only owns a remainder interest, or only owns a mineral interest or an easement right, in land), and when the lender is trying to do something other than a plain vanilla foreclosure to enforce the lender's rights (e.g. putting business property in receivership pending foreclosure, or doing a "deed in lieu" transaction instead of a formal foreclosure).
Rarely, the term hypothecate is also sometimes used by non-lawyers who don't really know what they are talking about who think it is an exact synonym for "mortgage" but want to sound fancy and obscure and especially knowledgable.
Where Would A Hypothec Be Used Today?
Increasingly, the use of a hypothec rather than a mortgage is fading in Louisiana and Puerto Rico, under pressure for large U.S. based financial institutions operating in national capital markets that only understand mortgages. So, this term is gradually becoming obsolete in U.S. legal usage, even though this kind of transaction is still on the law books in these jurisdictions.
But hypothecating real property is an activity that is alive and well on an every day basis in Quebec (whose laws are based upon historic French law), because Canadians are used to Quebec being significant and different. It is also used in other civil law countries that have their own independent mortgage finance systems and practices independent of U.S. national mortgage finance markets. Globally, it is probably as common to hypothecate real property as it is to mortgage it.
How Did This Term End Up In Your Routine English Language Power Of Attorney Form In An Ordinary Real Estate Closing?
The power to hypothecate probably ended up being included in the list of powers granted by the power of attorney, because someone had a transaction for a client once in Continental Europe, Latin America, Louisiana, Quebec, or Puerto Rico, where people use a hypothec instead of a mortgage. That attorney wanted to be sure that their client's broad durable power of of attorney (for use upon the incapacity but not death of a wealthy person) gave their power of attorney agent the power to borrow money with this kind of security if necessary.
Then, that boilerplate language probably got carried over into a limited power of attorney for a real estate transaction where this would never actually come up as something that the agent would or could do, because it was part of a list of real estate specific power of attorney powers.
Further detail
Jen at Law.SE Meta explained that:
This is a technical legal term that has much more nuance to its
meaning in civil law than naive translation to "mortgage."
Barbara Pierre, "Classification of Property and Conceptions of
Ownership in Civil and Common Law" (1997) 28 Revue générale de
droit 235:
The nature of the mortgage and the hypothec of immovables are far from
similar, and reflect in the common law the absence of, and in the
civil law the reliance on, an abstract concept of ownership.
To explain a hypothec requires explaining the nature of property in
civil law.
The linked article explains that (with footnotes omitteds):
[T]he nature of the hypothec is explained in civil law by reference to
the attributes and characteristics of that central right, ownership.
It is described as an accessory real right.
The classification as a real right points to the fact that, as in the
case of ownership, (and its modes and dismemberments) the creditor has
a direct right in the thing itself. This direct right in the thing is
in the form of certain remedies against the land itself. It is
manifested by the droit de suite and the droit de préférence. The
droit de suite refers to the right to follow the thing hypothecated in whosoever hands it is. It does not matter that the current owner is
someone other than the original borrower, in other words, that there
is no privity of contract. As a direct right, it is the land itself
that owes the right conferred on the creditor by the hypothec. The
droit de préférence refers to the right to get the benefits of the right conferred by the hypothec before other creditors.
Its status as an accessory real right signifies that, unlike
ownership, a principal real right (and its modes and dismemberments
which are also principal real rights), which entitles the holder to
any of the powers over land of usus, fructus or abusus, the
hypothec is ancillary to a principal obligation. It is intended only
to give the creditor of this obligation remedies against the land, in
the event of default by the debtor. As such, in contrast to ownership,
it does not give him any immediate right to use, enjoy, or dispose of
the land.
This accessory character is manifested in several ways. Pratte groups
them under four broad principles:
The hypothec cannot exist alone, without a principal obligation. Thus if the principal obligation is null, the hypothec created to
guarantee it is also null.
The hypothec is subject to the same modalities as the principal obligation. Thus it is conditional if the principal obligation is
conditional, and for a term if the principal obligation is for a term.
Jurists in both France and Québec have conflicting views whether it is
possible to create a hypothec where the principal obligation is
eventual. Some are of the view that this is not possible because the
principal obligation which it secures does not come into existence
until the prestation for which the obligation is owed is carried out.
Others are of the opinion that the accessory character of the hypothec
should not be so narrowly construed. One argument used is that the
accessory character is important at the point in time when the
creditor seeks to realise his security, and not to determine the time
at which the hypothec is created.
The hypothec follows the principal obligation if it is transferred. Thus if there is a cession of the debt due to the creditor, the new
creditor is entitled to get the benefit of the hypothec.
The extinction of the principal obligation, whether by payment, prescription, expiry of the term, novation, compensation, confusion,
release, impossibility of performance or discharge of the debtor,
results in the extinction of the hypothec.
Two other characteristics of the hypothec are worth noting. According
to civil law principles the hypothec is indivisible. That is to say
that the object to which it is attached, and every part of it, is
liable for the whole of the amount. Thus if the object is divided, the
hypothecary creditor can bring an action to enforce the hypothec
against any one, or both, of the new lots. This characteristic is not
however essential to its nature. It can be waived by the creditor in
whose interest the principle is established. An express provision to
the contrary can also override it.
The other characteristic of the hypothec is that it is immovable. This
however is not essential to its nature. Thus, while it is limited to
immovables in France, St. Lucia and, until the coming into force of
the new Code, in Québec, it can be movable or immovable under the new
Québec code.
The difference in the nature of the mortgage and the hypothec is
evident when the mortgagee or creditor respectively enforces the debt.
In both cases the debt is actionable in a personal action against the
mortgagor, debtor. However to enforce the security generally, the
mortgagee has more options than the hypothecary creditor. The only
method of realising the debt through the enforcement of the security
is in a hypothecary action. This enables surrender and judicial sale
of the immovable. The mortgagee may however:
Take the property in payment (in this instance the mortgagee also has the option of judicial sale of the immovable);
Sell (out of court);
Appoint an administrator;
Take possession.
The New Québec Code has now expanded the remedies available to the
hypothecary creditor. He therefore has open to him avenues similar to
the English mortgagee:
- Take property in payment;
- Sell (out of court);
- Take possession.
