Real Estate Transactions And The Effect Of Encumbrances

Posted by Greg Smith on Monday, May 6th, 2019 at 2:06pm.

Understanding Real Estate EncumbrancesWhen you decide to purchase a home, you want to ensure everything about the transaction is acceptable. Signing a home contract only to discover something is structurally wrong with the property is every home buyer's worst nightmare. One often overlooked area where things could go awry in a home purchase, however, is in the home's title.

As a home seller, this is a concern as well. You want to ensure nothing in the title that goes undisclosed, even if by accident, can cause liability for you. Even if you've protected against this, you may want to avoid bad press, so to speak, with respect to your real estate transaction. Particularly if you live in a small town, news travels quickly when someone is dissatisfied. This could be a concern both for your reputation and your ability to enter successfully into future real estate transactions.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

What to Know About Encumbrances

Here are some things to note about encumbrances. First, liens are the best known and most common encumbrance. They are simply monetary claims by a creditor against a parcel of property, employed to ensure the property owner's debt or obligation. A forced sale of property can sometimes occur in order to satisfy lien-holders. Deed restrictions are also encumbrances, because they create limitations on the property in question. Licenses, on the other hand, are considered a privilege of the person granted the license and can thus be cancelled. Easements are also usually considered encumbrances because they remain active and transfer with the property from owner to subsequent owner.

What is Title Encumbrance?

While most people are aware of and able to guard against structural defects in a property, encumbrances on the title are another area that warrants special attention. An encumbrance is consequently a technical term in legal circles that refers to anything that adversely affects or limits your property's title. This can include mortgages, leases, easements, liens, restrictions or virtually anything that can make the title transferable.

The Effect an Encumbrance Can Have on a Home

Consequently, encumbrances are important to note and understand. If restrictive enough, they can make a property's title wholly unmarketable. This could either cost you the sale of your home if you are a seller or the purchase of your new home if you are a buyer. It is prudent to check with your realtor and ensure the property you're either interested in selling or buying is not in any way encumbered before going through with a timely and costly transaction.

A Guide to Real Estate Encumbrances

There are many types of encumbrances that can be made on a property, potentially making it harder to sell. Homeowners and property owners may be forced to take care of the encumbrance before moving forward with a sale or transfer of ownership. Understand more about types of real estate title encumbrances today.

Common Real Estate Title Encumbrances

There are a handful of encumbrances that may occur to a property owner. A few of the most prevalent encumbrances are described in more detail.

Liens

This type of encumbrance is one of the most common. A property owner may need to pay off a debt and a lien is a monetary claim made against the property to help individuals, companies and agents receive monies owed to them. A contractor may place a lien, or a court judgment may serve to create a lien. A property owner who does not pay their lien may be forced to sell their property in order to pay lien-holders.

Deed Restrictions

Deed restrictions, conditions or covenants, place limitations on the property. They may determine which structures are permitted on the property or its legal use. Tight deed restrictions may turn off some potential buyers. This type of encumbrance is common when a new subdivision is developed.

Encroachments

This occurs when part of one property passes over and beyond the surveyed boundary line of another property. In most cases, this is not intended. Those that find that their property has been encroached upon may decide to have the other owner remove the encroachment, or may decide to receive damages. Rights of property owners can vary.

Easements

This is a type of permission given to another to allow them to use the property of the owner. Appurtenant Easements and Easements in Gross are two types of easements. An example of an appurtenant easement is when a driveway is permitted through the property of another to allow access. Utility easements like power lines are considered Easements in Gross. Rights to such may be transferred or sold.

Licenses

A license allows an individual rights to another person's property and can be terminated. A property owner may allow another to store a vehicle and may decide to cancel this agreement at any point.

Many of these real estate encumbrances are useful ways to declare how property is to be used by the owner or another party. Some encumbrances, such as an encroachment or lien, may lead to further legal issues.

Claims Against a Property

Before buying a home or an investment property, perform a title search to determine whether an encumbrance exists that may serve as a potential impediment. Those to look out for include encroachments which are generally discovered when the property is surveyed and can potentially cause issues when an owner wants to sell their property. Speak with a lender to understand which encumbrances on a title can make it hard to obtain a mortgage.

Save Yourself the Risk By Buying a Home With an Expert Real Estate Agent

Looking for your dream home in Colorado, but can't decide if you want to buy real estate in Louisville CO or purchase Boulder CO real estate? You may consider letting a real estate agent help you in your search. They can provide valuable information about the Boulder areas you are looking in, including complete real estate data for any homes or properties you may find.

For informational purposes only. Always consult with a licensed real estate professional before proceeding with any real estate transaction.

Greg Smith

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