HomeReal EstateWhat Is Encumbrance Real Estate? What Is The Basic Purpose Of Encumbrance...

What Is Encumbrance Real Estate? What Is The Basic Purpose Of Encumbrance In Real Estate?

What is encumbrance?

Easements as an encumbrance is a restriction placed on the title to a property that limits how and if use can be made of that property. The easement itself does not take up space, but it does restrict the use of the land it’s attached to. This is usually done for public benefit, such as utility companies who limit their pipeline access to specific locations across properties, or railroads.

Encumbrance real estate

Some may think that real estate is simply land, buildings, and the soil underneath them. However, encumbrances are also real estate assets. An encumbrance can be anything from a lien or mortgage to an easement or restrictive covenant. These encumbrances don’t affect the physical property but do impact how you can use it.

While you cannot avoid encumbrances, by having full knowledge of what they are before making your purchase will help protect you against future complications later on down the road. Most importantly, knowing what these things are before buying ensures that you’re not caught unaware if something does happen to go wrong with your property.

Encumbrances

The American Heritage Dictionary defines “encumbrance” as “something that holds back or burdens”. For the purposes of real estate, this means someone other than the owner can make a claim regarding the use of the property. An encumbrance is not included in your “down payment” to purchase land or any building on it. Most often an encumbrance appears after you have made the majority of your purchase.

At its most basic, an encumbrance can be anything from a lien or mortgage to an easement or restrictive covenant that does not affect the physical property but does impact how you can use it. Some examples:

  • If there is a mortgage on the property and you do not pay, foreclosure proceedings will usually begin automatically and your amount owing becomes an encumbrance on the property until it is paid off or satisfied.
  • If you purchase a condo at $300,000 and there is a $50,000 fee due to the homeowners association (HOA) which you do not pay then your lien against the property may serve as an encumbrance for this amount if they pursue foreclosure proceedings.
  • You are considering purchasing land where there is a “do-not-build” covenant–this means that no home can be built on this land because of its proximity to future build-out areas or environmental concerns. This may create an encumbrance on the value of the property since it inhibits any potential buyers from building their own homes here in the future.

Effect of encumbrance

Encumbrances can also affect your property’s value and restrict you from selling it. For example, if the land next to yours has a restrictive covenant that prevents you from building any structures on it, this will become an encumbrance on your property should you ever want to sell it. This won’t directly reduce the asking price but it could prevent you from getting top dollar because of future unknowns that may hinder your product value.

Read More: https://investbout.com/how-to-start-a-painting-business-what-some-basic-rules-to-start-the-painting-business/

How to avoid or minimize encumbrances?

To avoid encumbrances, make sure all attorney fees are paid for in cash rather than financed through the final purchase agreement or escrow process – this way there is no lien recorded against the property by escrow. Attorneys are usually happy to do this and will assist you in the process of making this happen.

However, when all attorney fees are paid by credit card or check then it is recorded with your name, credit or debit card number and/or bank account information against the property by the County recorder’s office which can be an encumbrance for future buyers.

Easement

One type of encumbrance is an easement. An easement is a right that one person (or party) has over the land of another. Easements can be acquired for a multitude of reasons including to access utility lines and for maintenance. For example, if your neighbor’s property was not accessible from public roads without trespassing on your property, they may acquire an easement across your property so they could reach their driveway.

Responsibilities of easements        

Easements allow people or entities other than the property owner to use a portion of a privately held property. For example, an easement allows a utility company access to their lines or allows a neighbor access to the street from a landlocked property Easements are generally legal rights granted to one party, while use of the easement continues to be exclusively available for others.

Easements are commonly used by public utilities, such as power companies or water/sewer authorities who have limited access within a privately held property so they may provide services to subscribers without requiring them all to have access. The right granted in an easement is necessary for the benefit of other property owners so that all the properties can continue to be used for their original purposes.

Examples

For example, many homeowners associations restrict members from painting homes in certain colors or having satellite dishes on garage doors. These laws are typically enforced via covenants and conditions which are printed on deeds along with easements. Without these restrictions being written this way, it would require every existing homeowner to purchase a new deed if they wanted to change their house color or dish.

Where easement is used?

Easements are also used to ensure future owners of property have access to particular parts of it, for example cross-easements are often used in situations where two parcels may be divided by another party’s land and agreements must be established so people can still access both portions when desired. A similar situation exists with rights-of-way easements which provide public access such as highways.

Lien or mortgage

Another common type of encumbrance is a lien or mortgage. A lien or mortgage is used as security by the lender when borrowing money to purchase property such as real estate. The amount borrowed plus interest becomes due once the loan term expires unless repaid earlier. Although this type of encumbrance does affect the property owner, it can generally be lifted upon repayment of the loan.

In addition to easements and mortgages, a tax lien is also an encumbrance on property. Tax liens are levied against a specific piece of property by a government entity such as the IRS or State Tax Commission. In most cases, these funds can only be released when all outstanding taxes have been paid in full.

A deed of trust is much like a mortgage encumbrance, although there are specific differences. A deed of trust does not necessarily indicate that the owner or owners have defaulted on the property, but it does ensure that the property will be sold if they do default. Without a deed of trust, lenders cannot take legal action against borrowers who do not repay their loans. Deeds of trust are executed by an individual or individuals wishing to borrow money for property or other purposes. Although these agreements may contain many stipulations and terms, they are straightforward in form and execution.

Benefits of mortgage encumbrances vs deeds of trusts

A mortgage encumbrance provides a source of collateral for debt, while a deed of trust is not used to secure repayment of debt. A lender will require a homeowner to sign a mortgage or the deed of trust to indicate ownership and agreement on rights and responsibilities. In many cases, lenders will offer both options so that they have another form of legal recourse if a borrower defaults on repayments.

Title companies use this information to determine whether property owners can qualify for loans when selling their homes. Mortgage lenders typically charge homeowners lower interest rates than those associated with deeds of trusts because mortgages provide greater security in the event of default; however, deeds are generally considered superior for smaller properties.

Frequently Asked Questions

What are the types of encumbrance?

There are two types of encumbrance. That is lien and easement.

What is the basic purpose of encumbrance?

The basic purpose of encumbrance is hindrance or restriction on the funds which government send for the welfare of people.

RELATED ARTICLES

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Most Popular

Recent Comments