What is an Encumbrance in Real Estate?
What is an Encumbrance in Real Estate?
An encumbrance is a claim, lien, charge, or liability attached to and binding real property. These encumbrances can affect the value, use, or transferability of the property. They do not necessarily prevent the transfer of property ownership, but they do encumber or limit it in some way. There are several types of encumbrances:
- Liens: These are financial claims against the property, often for unpaid debts. Examples include mortgage liens, tax liens, and mechanic's liens.
- Easements: These are rights granted to another party to use a portion of the property for a specific purpose. For example, a utility company may have an easement to run power lines through a property.
- Deed Restrictions: These are provisions written into the property deed that restrict how the property can be used. They are often put in place by developers to maintain a certain standard within a subdivision.
- Encroachments: These occur when a structure or improvement on one property extends onto another property. For example, a neighbor’s fence or shed that crosses the property line.
- Leases: If a property is leased to a tenant, this lease is an encumbrance that binds the new owner to the terms of the lease until it expires.
Encumbrances must be disclosed to potential buyers because they can affect the property's value and the buyer's ability to use the property as intended. Buyers often perform a title search to uncover any encumbrances before purchasing real estate.
