Encumbered Securities

AAA

DEFINITION of 'Encumbered Securities'

Securities that are owned by one entity, but subject to a legal claim by another.

When an entity borrows from another, legal claim on the securities owned by the borrower can be taken as security by the lender should the borrower default on its obligation. The securities' owner still has title to the securities, but the claim or lien remains on record. In the event that the securities are sold, the party with the legal claim on them must be given first opportunity to be paid back. In some cases, encumbered securities cannot be sold until any outstanding debts belonging to the owner of the securities are paid to the lender who holds claim against the securities.

INVESTOPEDIA EXPLAINS 'Encumbered Securities'

Just as a house may be used as collateral for a mortgage, securities may be used as collateral for borrowing. While title does not change hands, it is limited by the extent of the lien on the assets. Contrast with "unencumbered".

RELATED TERMS
  1. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  2. Encumbrance

    A claim against a property by another party. Encumbrance usually ...
  3. Creditor

    An entity (person or institution) that extends credit by giving ...
  4. Deed

    A legal document that grants the bearer a right or privilege, ...
  5. Default

    1. The failure to promptly pay interest or principal when due. ...
  6. Lien

    The legal right of a creditor to sell the collateral property ...
Related Articles
  1. Borrowing From Your Retirement Plan
    Retirement

    Borrowing From Your Retirement Plan

  2. What are the differences between gross ...
    Fundamental Analysis

    What are the differences between gross ...

  3. 10 Common Financial Terms Every Newbie ...
    Investing Basics

    10 Common Financial Terms Every Newbie ...

  4. ChartAdvisor for Aug. 8, 2014
    Chart Advisor

    ChartAdvisor for Aug. 8, 2014

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center