Encumbrances can cover a variety of financial and non-financial claims on a property. The most common types of encumbrances are legal encumbrances, financial encumbrances, easem*nts, restrictive covenants and leases. Let’s talk more about each of these encumbrances and explain what their implications may be for buyers. Encumbrances are created by the operation of law, like environmental regulations or zoning laws. These restrictions don’t affect the sale of the property, but rather its uses. When dealing with legal encumbrances, home buyers are expected to do their due diligence to understand how a property they are interested in purchasing can be used.Legal Encumbrances
Financial Encumbrances
Financial encumbrances, called liens, are debts incurred by owners that are lodged against the property. Two common types of liens are mortgage liens and mechanic’s liens.
A mortgage lien allows homeowners to afford a house over time instead of having to pay for it in full upfront. Lenders will use the home as collateral, but it won’t be affected if the mortgage payments are made on time.
A mechanic’s lien is used by builders, contractors and construction firms to afford building or repairing structures. In this case, the lien guarantees that workmen are paid if liquidation occurs.
Easem*nts
An easem*nt gives a person or an organization the right to use another owner’s property for a limited specific purpose. For example, utility workers could have an easem*nt to gain access to a homeowner’s property to service their equipment. In addition, a landlocked neighbor may have an easem*nt over a homeowner’s property to access the road. Easem*nts run with the property, so a new owner can’t prevent the easem*nt beneficiary from using it.
Restrictive Covenants
A restrictive covenant is an agreement to either take or refrain from taking a specific action on a property. Restrictive covenants are common in neighborhoods that follow a homeowners association’s rules. For example, an HOA may require that a home meet certain maintenance standards such as frequent lawn mowing or regular house painting.
Encroachments
An encroachment is when someone who doesn’t own the property somehow interferes with their neighbor’s property. This could be anything from building a fence that crosses over the property line or even a structural addition that extends beyond the legal property boundaries. Depending on the situation, encroachment can either be intentional or harmless but it can lead to liability issues, property damage and even problems at the time of sale.
Leases
A lease is an agreement to rent a particular property for a certain amount of time at a certain cost. A lease gives the leaseholder rights that are unaffected by a sale of the leased property. It’s a right to use the land in a particular way that can’t be blocked by a new owner.
