In the world of real estate, the term encumbrance is a familiar term. An encumbrance, when practical, can restrict the free use of an asset/property. It restricts the owner from transferring the title of a real estate property to someone else.
Governments often use encumbrance to avoid the overuse/spending of their funds. For example, when there is a tax lien on a certain property, encumbrance prohibits the transfer of ownership of the property.
If you wonder what encumbrance means in real estate, then here is your answer. We have talked about what encumbrance means in real estate and its types with examples. So, let's start with the definition of encumbrance.
What Is Encumbrance?
Encumbrance, a term applied to a property, denotes a burden placed on the property that can potentially decrease its value. It's a liability against, limitation on, and a claim against a real estate property. Leading real estate companies often face encumbrance claims.
Encumbrance includes liens, deed restrictions, encroachments, easements, and licenses in real estate. An encumbrance limits a specific property's transferability and wayward use until it is no longer effective.
Key Identifiers Of Encumbrance
- The titleholder of a property is never the one to claim an encumbrance. Someone other than the current property holder claims encumbrance against a real estate property.
- Especially in commercial cases, some of the encumbrance claims do not affect the property value.
- Common encumbrance claims are easements, liens, leases, and mortgages.
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Types Of Encumbrance
There are different types of encumbrance claims. For instance, Liens, Deed restrictions, encroachments, easements, etc., are some examples. In this article, we have discussed these types in detail.
1. Liens
You may get a lien encumbrance for several reasons. For example, if you have not paid your property taxes or avoided your income tax, you may have a lien encumbrance against your asset. You can also have blanket liens placed against your real estate asset.
If you have done any work on your property that you still haven't paid for, you will face the repair person's lien on the property. For example, if you have done any repair work as a major fixing of the air conditioning, you may face a lien against your property. You cannot sell or turn the ownership over to someone else unless the lien is lifted.
We recommend you to keep receipt of all the fixing and work you do on your property. You cannot cut your way through these types of problems using real estate negotiation tips. It is better to keep all the documents and pay the bills if any bill is unpaid.
It is always helpful to know how a line works. You can measure your steps based on it. You can face a lien placed against your property in the following cases-
- Skipping payment of local property taxes.
- Skipping water-sewer bills.
- Homeowner association dues.
- Dues from Condominium association.
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2. Deed Restrictions
Someone can claim an encumbrance against your real estate property through a deed restriction. What does deed restriction mean? It means that you cannot sell a property if any restriction is mentioned in the deed passed down from owner to owner.
Deeds may contain certain conditions restricting and limiting the new owner from doing certain activities with the property. This encumbrance can be pretty troublesome for a current owner. They may face a deed restriction against them for violation of the property deed.
3. Easements
This encumbrance means that someone who is not the owner of a specific property can use it. An entity without any right to the property can access the property and use it. For example, if it has an easement, a utility company can place a plant power grid on the property of a farmer.
With a common easement, an adjacent property owner can access their property through another person's property. For instance, roads, electric lines, water, and gas get such easements.
4. Encroachment
Encroachment is another example of real estate encumbrance. Encroachment exists when one property crosses its boundary and overlaps on an adjoining property. You can take this below example for a clearer idea.
If your neighbor is unaware of their property boundary and adds a fence or a wall unknowing it is an encroachment. Title insurance policies and surveyors have to acknowledge it until it is removed. The enrichment also needs to be noted for the old fences that no longer exist.
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Conclusion
It is necessary to read and keep knowledge of all the encumbrances to avoid unnecessary troubles. Real estate businesses are full of such legal issues. Before buying and selling any real estate property, you must be conscious of all of these types of encumbrance.
It is easier to come across a guide for real estate funding. But if you have an encumbrance placed against your property, it may restrict you from using or selling your property. We hope the information we provided you about encumbrance was helpful.
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