In Real Estate
terms, to hypothecate is to use real property
as security for a debt. The main
difference from the Webster 1913
definition is that it is not a pledge
, which, in real estate terms, is the act of using personal property (which is anything except real property, i.e. cars, guitars, computers) as security for a debt.
When you trade in your stratocaster at the pawn shop you are pledging that personal property. The main difference between a pledge an a hypothecation is that when you pledge something the lender keeps the thing you pledge and when you hypothecate something you keep it, such as in a mortgage when you keep full title to your property and full use of it, but it is hypothecated by a security instrument (often a mortgage or a deed of trust) to whomever lent you the money.
Hypothecate is not to be confused with hypothesize. The two sound identical but mean two totally different things.