Maybe you have heard the term encumbrance somewhere, but do you know what is an encumbrance in real estate? Or the role it plays in buying and selling for real estate?
In any type of real estate transaction, you will have to deal with the encumbrance, it can be more than one. What is an encumbrance in real estate?.
An encumbrance is a legal, financial and personal responsibility that hampers the transfer of a property.
Real estate agents must be familiar with various types of encumbrance and the effect they throw on the sale or while transferring a home, land, and other kinds of property.
Normal people must also give this article a read, as knowledge is power.
What Do You Mean By Encumbrance?
Encumbrance is a charge given by a party who is not the owner of a property. An encumbrance can harm the property’s transferability as well as the limits. It cut short the free use of the property.
Properties that cannot be moved are the common forms of encumbrance, including property tax liens, easements, and mortgages.
Financial burdens are not the only ones, there are non-financial burdens too like easements. An encumbrance can also occur on personal property as to oppose the real one. I
Encumbrance is used to point out the restricted funds in an account reserved for a certain liability, in accounting.
In Details: Understanding What Is An Encumbrance In Real Estate
The word encumbrance is more than a variety of title-holder’s financial and non-financial claims on the property. For landowners it becomes upsetting to see somebody else having full control over the land, in those cases, a creditor repossesses the land or the government seizes it.
A lien or an easement makes the title unmarketable therefore encumbrance effects security’s marketability. By this fact doesn’t mean that the title cannot be sold and bought. Encumbrance can actually claim damages in jurisdictions by withdrawing the purchaser from the agreement, despite a signed official settlement.
Now we will be looking into the types of encumbrance of what is an encumbrance in real estate.
Types Of Encumbrance
By reading the types of encumbrance you will get to know how it works in order to organize the sales or transfer process of real estate.
1. Mortgage Encumbrance
The common encumbrance for most owners is either mortgage or a deed of trust. In a mortgage, there is an agreement between the borrower and the lender, and in a deed of trust, there is as well an agreement. But this time it’s between three figures, the borrower, the lender, and the trustee.
Regardless of the situation, you have to satisfy the encumbrance if you want to sell or transfer the property from one location to another.
In most cases after pleasing the encumbrance turns into a reconveyance deed. This means that the title is now provided to the new owner and things have been dealt with the previous owner.
In case of bankruptcy, the table can drastically turn on the title if the following owner isn’t willing to pay for releasing the encumbrance.
2. Liens Encumbrance (Voluntary)
Voluntary liens are a debt that is out of harm’s way and is agreed upon by the property owner. For example, a home equity line is offering emergency cash funds for the repair of homes and funds for debt consolidation. Suppose the borrower is not interested in using the line of credit or already has paid, a voluntary lien must be laid down to allow the property to change hands.
3. Liens Encumbrance (Involuntary)
Involuntary Lien is placed on the property when there is no consent of the landowner. There are many types of involuntary liens
Tax lien- this lien is placed on land to satisfy the government debt including property tax or income tax.
Mechanic’s lien- this lien is placed on the land to satisfy the contractor or subcontractor debt, who worked on the land with materials in order to repair. Lis Pendens – the words mean “ pending legal action”. It is used when the property gets involved in legal questions of ownership or contractual variance.
4. Easement Encumbrance
You may ask, is easement an encumbrance? I am not sure myself but let me explain. an easement allows utility companies to get to the lines or permit a neighbor to the street from a landlocked property.
Easements basically restrict you from particular uses and the action effects the property rights of the owner.
5. Encroachment Encumbrance
There may be a fence onto the neighboring property that cuts across the portion of private land. These encroachments are considered encumbrances. These encroachments are needed to be noted during inspections and surveys.
If necessary then the easements should be put in place to make sure that the encroachments do not effect the ownership or insurability of the property.
6. Restrictive Covenant Encumbrance
This encumbrance comes into play when there is historical or architectural importance with street rules with reference to home styles and land appearance.
It is important for the buyer to talk about the restrictions that come with the property. It is also essential for the seller to think about the restriction that can limit their capability to market and sell properties.
The supervising entity must confirm whether the property is in compliance due to the diligence process to make sure that the buyer does not turn into trustworthy repairs, corrections, or penalties.
Wrapping It All Up
Encumbrance is a big part of the real estate sector. One should be aware of everything it holds within.
We all wish to buy a house for ourselves but if we are not familiar with this term properly it can lead us to trickery.
The article what is an encumbrance in real estate has been covered in total to make people understand it in a simple way.
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