An encumbrance in real estate is a claim against a property by someone other than the owner. It is a generic term that includes liens, deed restrictions, easements, and encroachments. All types cloud the title, but your home may still be marketable, even with land-use restrictions.
- Title searches let you know if you have one
- A lien is one type of encumbrance
- You can sell a home with land-use restrictions but not if it has a lien
Whether you are a buyer or seller you need to know if there are encumbrances on the property. It affects the use, value, and even the marketability of the house.
Encumbrances on a Title
Encumbrances on title refer to the claims on the house by people other than the owner. They include:
- Lien – the most common are mortgage and tax
- Deed restriction – limit the use of the property
- Easement – gives third-party access to the property in some way
- Encroachment – A structure on the property is too close to a property line or goes over onto an adjacent property
They do cloud title. This means that you need to deal with them before you buy or sell the house. The seller needs to disclose any deed restrictions or easements to the buyer upfront. Sellers also must clear any liens and remediate encroachments before they can sell their home.1
How do I Find an Encumbrance in Real Estate?
You find out if your home has an encumbrance by conducting a title search. Some run with the land, such as deed restrictions, easements, and encroachments. If you have one of these, your search should have uncovered it when you bought your house.
Liens, on the other hand, are claims against your property for debt payment. These include:
- Mortgages
- Tax liens
- Special assessment taxes
- Mechanics lien
- Judgments
You should know if you financed something and used your house as collateral. The exception is a mechanics’ lien. Often, if you finance work that is done to your house the contractor places one on your home.
This is important when you sell your house, so if you want to put your home on the market it’s a good idea to pay for a title search. This will find any encumbrances before someone places an offer.
Remove an Encumbrance in Real Estate?
You can remove an encumbrance by filing a lien release with the county recorder. This will not work for all, though. Some run with the land, and you can’t remove them. Land use restrictions include setbacks, easements, and zoning. In these cases, you have marketable, but not a clear title.
Unlike land-use restrictions, you can remove liens. There are two ways you can have a removable lien on your house:
- Unpaid bills: either mortgage, mechanics, or tax
- Paid bills that haven’t been recorded
The solution is to pay off the debt and record a lien release with the county recorder.
Difference Between a Lien and an Encumbrance in Real Estate?
A lien is a monetary claim against a property, while an encumbrance is any claim. Liens always represent a financial interest. Creditors put them on a house so they can recover payments. The three common types are mortgage, mechanics, and tax.
Encumbrances include liens, but there are other types as well. It can restrict a house’s use as well as its transferability. It burdens the property, may reduce its value, and clouds the title.
Finally, you can rectify disputes with creditors and file lien releases. Others like easements run with the land. You can get a marketable, but not a clear title for your house.3
Can an Encumbered Property be Sold?
You can sell an encumbered property under certain conditions. It depends on the type of encumbrance.
- Financial – You must clear up the issue before you can sell
- Land use – Run with the land, and will not block a sale
If you have a land-use issue, such as an easement, you can continue the sale. These easements often affect the value of the property, but sometimes they do not. Either way, they do prevent a clear title.
Final Thoughts on Encumbrances in Real Estate
Encumbrances prevent a property from getting a clear title, but they do not necessarily prevent home sales. Land use issues, like easements, leave the house marketable but without a clear title. Financial issues, or liens, do prevent home sales.
