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Encumbrances: What They Are And How They Work

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Published on October 8, 2020
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An encumbrance in real estate is when a claim is made against a property by someone who is not the property owner. In real estate, it can affect the property's sale and typically requires a legal process to resolve. If you think that your property might risk having a claim against it, read on to learn about types of encumbrances and what to do if you're dealing with one.

Encumbrance Definition

An encumbrance in real estate happens when a claim is made against a property. Claims are typically made when a structure has been built on two properties or a lien is on the property. Encumbrances can impact property title and the ability to transfer ownership of a property. Encumbrances do not always affect a property's value and might require a legal process to help resolve depending on the type of encumbrance.

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Types Of Encumbrances

Common types of encumbrances are easements, encroachments, liens and deed restrictions. These types of encumbrances define what each party is entitled to and protect each party within the local law.

Easements

Easements can be placed on a given property and can impact a property and its owners. In this legal situation, the title to a piece of land remains with the landowner. Still, another person or organization is given the right to use it for a specific purpose. For example, a utility company might have the right to put an electrical pole on the property. 

Encroachments

Encroachments occur when a neighbor builds something on a property or overhanging on a property. Encroachments can affect a home purchase because if there is a structure on two properties, there might be a discrepancy in homeowner's insurance claims or other legal issues. Additionally, it could affect the property's resale value due to property rights and other problems with the title of a home. 

Liens

A lien is a legal right to property. One example is mortgage lien, which gives a person or company a claim to a property until a debt is paid off. For example, when a person takes out a mortgage, the mortgage company will have a lien on the property until the homeowner pays off their mortgage. 

Deed Restrictions

A deed restriction, also known as a restrictive covenant, are rules built into the deed on a property that dictates how a piece of real estate can be used. These restrictions might be enforced by a homeowners association (HOA) or other company or organization and can apply to property maintenance, architectural guidelines, and how the property may be used. These deed restrictions are an encumbrance that can affect property sales depending on the limits laid out in the restrictive covenant.

Zoning

Zoning can be an encumbrance to a property. Zoning laws are a municipal regulation that states what a property can be used for. For example, zoning laws help ensure that a shopping mall doesn't go up in the middle of a neighborhood, or that your suburban next-door neighbor doesn't decide to build a large apartment building on their property. 

Can You Get Encumbrances Removed?

Removing an encumbrance might be as easy as removing a structure from a property, or it might be as complicated as carrying out a legal process. Encumbrances may be removed by replotting property lines, paying off a lien, or could be excused. The document to remove an encumbrance is called a reconveyance deed. The reconveyance deed conveys a clear title to the property owner.

How To Find Out If A Property Has Encumbrances

When transferring ownership of a property, the property must have a clear title. In other words, the legal sale of a home requires that there not be any encumbrances on a property when selling it.

There are a few ways for home buyers to determine whether the property they're looking at has encumbrances attached to it. A title search is the first step. If there are any documented encumbrances on a property, they should come up in the title search.

Additionally, most mortgagors require mortgagees to have title insurance. Title insurance protects the homeowner and the mortgage company if a claim on the title of a property comes up after the sale of the property.

The Bottom Line

There are several types of encumbrances, including easements, encroachments, liens and more. A title of a property must be free of encumbrances before transferring ownership. Depending on the type of encumbrance, resolving the encumbrance might require a legal process to resolve. Therefore, it is wise for every homeowner to have title insurance and to do a thorough title search before purchasing a property. 

To learn more about purchasing a home and more, be sure to check out the content in the Quicken Loans® Learning Center.

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Call our Home Loans Experts at (800) 251-9080 to begin your mortgage application, or apply online to review your loan options.

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