What Is an Encumbrance in Real Estate? A Guide for Buyers and Sellers

An encumbrance is a claim or restriction on a property that affects its owner’s ability to use, enjoy, or transfer the property.

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Property Dispute Lawyer [PHOTO COURTESY OF LITTLEJOHN]
 It can be placed by a third party who is not the owner of the property, such as a lender, a government, a utility company, a neighbor, or a homeowners association.

An encumbrance can also be created by the owner of the property, such as by granting an easement or a lease to someone else.

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Types of Encumbrances

There are many types of encumbrances in real estate, but they can be broadly classified into two categories: financial and non-financial.

 

Financial Encumbrances

Financial encumbrances are claims that involve money or debt.

The most common type of financial encumbrance is a lien, which is a legal right to seize or sell a property to satisfy a debt or obligation.

A lien can be voluntary, such as a mortgage or a deed of trust, or involuntary, such as a tax lien or a judgment lien.

It can affect the owner’s ability to sell or refinance the property, as well as the buyer’s ability to obtain clear title and financing.

Non-Financial Encumbrances

Non-financial encumbrances are claims that do not involve money or debt, but rather limit the use or enjoyment of the property.

Some examples of non-financial encumbrances are:

Easement:

An easement is a right to use or access a portion of another person’s property for a specific purpose.

For example, a utility company may have an easement to run a gas line through your property, or your neighbor may have an easement to cross your driveway to reach their garage.

Restrictive covenant

A restrictive covenant is a rule or condition that limits how a property can be used or improved.

For example, a homeowners association may have restrictive covenants that regulate the exterior appearance, landscaping, parking, noise level, and pets of the properties within the community.

Encroachment

An encroachment is an unauthorized intrusion of one person’s property onto another person’s property.

For example, your fence may encroach onto your neighbor’s land, or your neighbor’s tree may encroach onto your roof.

Lease

A lease is an agreement that grants someone else the right to use or occupy your property for a certain period of time and under certain terms.

For example, you may lease your apartment to a tenant, or your garage to a friend.

How to Deal with Encumbrances

Encumbrances can affect the value, marketability, and usability of a property.

Therefore, it is important to be aware of any existing or potential encumbrances before buying or selling a property.

Some ways to deal with encumbrances are:

Perform due diligence

Before buying a property, you should conduct a thorough investigation of the property’s history, condition, and legal status.

You can do this by ordering a title search and report, which will reveal any liens, easements, restrictive covenants, and other encumbrances on the property.

You should also inspect the property physically and visually for any signs of encroachment or damage.

Negotiate with the parties involved

If you discover any encumbrances on the property that you want to buy or sell, you may be able to negotiate with the parties who hold the claim or restriction.

For example, you may ask the lien holder to release the lien upon payment of the debt, or you may ask the easement holder to modify or terminate the easement.

You should consult with an attorney before entering into any agreements regarding encumbrances.

Obtain title insurance

Title insurance is a policy that protects you from any losses or damages caused by defects or errors in the title of the property.

Title insurance can cover you from any unknown or undisclosed encumbrances that may affect your ownership or use of the property.

You should obtain title insurance from a reputable title company before closing on the purchase or sale of the property.

How do I remove an encumbrance from my property?

Removing an encumbrance from your property depends on the type and source of the encumbrance.

Here are some possible ways to deal with different kinds of encumbrances:

1.If the encumbrance is a lien, you may need to pay off the debt or obligation that caused the lien to be placed on your property.

You can then ask the lien holder to release the lien and file a document with the public recorder’s office to clear the title.

2.If the encumbrance is an easement, you may need to negotiate with the easement holder to modify or terminate the easement.

Try to buy out the easement or exchange it for another piece of land.

You may need a lawyer to draft a legal agreement and record it with the public recorder’s office.

3.If the encumbrance is a restrictive covenant, you may need to comply with the rules or conditions that limit how you can use or improve your property.

You can also try to get a waiver or variance from the entity that imposed the restrictive covenant, such as a homeowners association or a government agency².

4.If the encumbrance is an encroachment, you may need to resolve the issue with your neighbor who is intruding on your property.

Try to reach an amicable agreement, such as adjusting the property lines, granting an easement, or compensating for the damage.

You may also need to take legal action, such as filing a lawsuit or seeking an injunction, if your neighbor refuses to cooperate.

5. If the encumbrance is a lease, you may need to honor the terms and conditions of the lease agreement until it expires or is terminated.

Try to negotiate with the tenant or subtenant to end the lease early or transfer it to someone else.

You may need a lawyer to review or draft a new lease contract and record it with the public recorder’s office.

 

Conclusion

An encumbrance is a claim or restriction on a property that affects its owner’s ability to use, enjoy, or transfer the property.

There are many types of encumbrances in real estate, such as liens, easements, restrictive covenants, encroachments, and leases.

Encumbrances can affect the value, marketability, and usability of a property.

Therefore, it is important to be aware of any existing or potential encumbrances before buying or selling a property.

You can deal with encumbrances by performing due diligence, negotiating with the parties involved, and obtaining title insurance.

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