Understanding Encumbrance on Title: A Beginner’s Guide

Buying a property comes with many risks. Perhaps you have heard about property title encumbrances and wonder how they may impact your purchase. An encumbrance on title is a claim or restriction on the property by someone other than the titleholder that can affect the owner’s use rights or ability to sell. Understanding the complexities of title encumbrances can help buyers make informed decisions. This post will explore the basics of encumbrance on property titles.

Encumbrance on Title: What You Need to Know

Liens on the Property

Liens are among the most common types of property encumbrances. A lien is a legal claim against the property resulting from a debt. For example, when you take out a home loan, the property will have a mortgage lien against it. Typically, you’d need to satisfy that lien by paying the remainder of the mortgage at the time of the sale. Tax liens, mechanic’s liens, and judgment liens are other types of liens that can complicate transactions by delaying or preventing the title transfer.

Lease Agreements

An owner having a lease agreement with a tenant would also be an encumbrance. While a lease doesn’t affect ownership, it grants the tenant rights to use the property during its term. That can impact the owner’s right to use or modify the property while it is under lease. The lease obligations also transfer with ownership. That means the new owner inherits the tenant and the lease agreement. Buyers should review lease agreements to ensure they understand the terms and obligations.

Property Easements

A property easement grants another party the right to use or access a portion of the property. A typical example could be a utility easement for workers to access lines or pipes on the property. While easements don’t impact ownership or the ability to sell, they can limit how the owner uses the property.

Covenants, Conditions, and Restrictions

Covenants, conditions, and restrictions (CC&Rs) are rules that homeowners’ associations (HOAs) establish. These encumbrances often dictate how owners in the community can use or modify their properties. For example, they might set home design standards and landscaping rules or limit the structures property owners can build. While the idea is to maintain community standards, some homeowners might feel they are overly restrictive.

Protecting Against Title Encumbrances

Buyers should investigate and protect against encumbrances before purchasing a property. The most effective way to uncover encumbrances is to hire a title company or real estate attorney for a title search. Buyers may also consider buying title insurance for added protection. Insurance can help cover financial losses associated with encumbrances. You should also review the title report thoroughly before closing.

Do you need help with a title search before purchasing real estate? Click here to contact First National Title & Escrow. Our title experts can help you discover encumbrances and explain how they may affect the transaction.

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