What is an encumbrance?
An encumbrance is a right or interest in a piece of real estate that belongs to someone other than the property owner. You can think of an encumbrance as a liability on a property. Since someone else holds an interest in the property, that right is a limit or restriction on the owner’s use of the property.
They impact the value of a property, usually in a negative way and can place restrictions on how a property can be used. However, they generally do not impact the transfer of title of a property.
What are some examples of an encumbrance?
Generally, there are two types of encumbrances, as follows:
- An encumbrance that is a financial claim against a property, which is referred to as a lien.
- An encumbrance that is a limitation on the use of a property, including easements, encroachments and deed restrictions.
As you have learned in your real estate pre-licensing course, a lien is a charge or claim that one person (lienor) has on the property of another (lienee) as security for an obligation or debt, such as a mortgage, or unpaid taxes.
An easement is a non-possessory property right to use another’s land for a specific purpose. The right may be to use the land’s airspace or the surface below it.
Encroachments are an unauthorized intrusion into the real property of another. These intrusions could be on the surface, in the air, or the subsurface space of the property.
Got it, but what is a deed restriction?
A deed restriction is a clause in a deed which may be inserted by a seller to limit the use of land. The imposed restriction is to limit the use of land, such as the size or type of improvements to be allowed. Deed restrictions are also known as restrictive covenants.
How would you know if a property has an encumbrance?
Encumbrances should be noted on the deed following the property description. If there are none listed, the seller can assume there are no encumbrances present.
What else can help me prepare to pass my real estate licensing exam on my first attempt?
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