An encumbrance is a limitation on the use of the real estate, a claim against it, the right to use it, or liability incurred by the real estate. Encumbrances are common in some types of real estate and some areas, and often they’re not serious enough to cause a problem in ownership transfer. In particular, easements are very common, and they are expected and not a negative factor in most cases. Here are the four most common forms of encumbrances in real estate.
A lien is a monetary claim against a property. There are many ways in which a property can have a lien filed against it, including:
- Non-payment of taxes.
- Failure to pay homeowner or condominium association dues.
- Failure to pay for repairs or home improvements.
- In some municipalities, liens can be filed for non-payment of utilities or services.
- Liens for losses in court for legal actions against the owner(s) of real estate, and the court action does not have to be related to real estate.
- Judgments of any kind, from failure to pay fines to civil violations
Liens are recorded in court records and remain of record, usually until the property is sold. In the course of the closing of the sale, the title company will discover the lien(s) and pay them out of closing funds before ownership can transfer and title insurance can be issued.
An easement is a recorded right to use a property or a portion of a property by an entity or person other than the owner. Very common are utility easements. They will be written to have access to a specified width of ground along with one of the property lines to install utilities, either above or below ground. Though the owner still has use of that space in most cases, they cannot in any way change or hamper the easement use.
Deed restrictions are some limitation of the use of real estate that’s written into the deed. They pass forward to future owners unless a difficult legal process can have them removed. If the restriction is not illegal, it will generally pass into the future for all owners. An example that may cause problems is when a large parcel is subdivided. If the original owners of that parcel, perhaps a ranch or farm, restricted the use to non-commercial, then businesses are not supposed to be on the property.
Many deed restrictions from many years or even decades before may just be ignored. If there are none of the original owners alive, and heirs do not act, ignoring the restrictions can be the result. These are separate but related to homeowner association restrictions, and those also are an encumbrance on the use of real property. Rules such as no outbuildings or fence height restrictions are common, and they run with the property as well.
An encroachment is the intrusion of something across a property line. One example would be fences placed improperly on the property of another, even if only a few inches into the other property. Another less frequent is the structure that intrudes on another property, including in the air space above the property. In tight building line lots, at times even a roof overhang of a home can become an encroachment if it passes into the air space across the property line of another.
The thing about encroachments that makes them important is that they will be noted on surveys and they will be excluded as an exception to the title insurance policy. In other words, if the new owner didn’t have a fence relocated back across the line before closing, they will not be able to file a title insurance claim for damages later.
The documents received before closing by the buyer include either an abstract of title or a title insurance binder and some form of survey or improvement location report. It is important to carefully review them to make sure that there isn’t something there in these four categories that would hamper your use of the property as planned.
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