What is an Encumbrance?

Real Estate EncumberancesAn encumbrance is a right that burdens or diminishes the value of a property; it impedes it in some way. There are different kinds of encumbrances. Encumbrances can be both financial or non-financial in nature. They can also affect the properties transfer-ability or the property’s use.

Financial Encumbrances

  • Liens – Money or financial encumbrances are also called liens.
  • Mortgages/Trust Deeds – Loans to purchase real property. These are the most common types of liens.
  • Tax Liens – Liens against property for unpaid property taxes.
  • HOA Liens – Liens against property for unpaid HOA dues.
  • Mechanics Liens – Liens against property for monies owed to contractors who performed work on the property.

Non-Financial Encumbrances

  • Covenants, Conditions and Restrictions (CC&Rs) – Limit the use of a property. These can be set backs issued by municipal code or can be the governing documents of a homeowners association. They can limit anything from the maximum height and size of buildings built on a property to things you are allowed to do on that property.
  • Easements – A right that a person or entity has in the property of another person or entity. In other words, it is a right to use someone else’s property without owning that property. There are many different kinds of easements that exist for many different reasons.
  • Encroachments – Something, such as a tree limb, bushes, roof overhang, or fence that sticks out over the property line onto the adjacent property.

Encumbrances, like easements, should be recorded to be enforced, so make sure you check title to see if there are any encumbrances. Your real estate broker or escrow officer can pull a title report for you to review. An encumbrance could limit your ability to even acquire the property so make sure you are aware before getting to far into it.

Source: Fillmore E. Galay et al., Modern Real Estate Practice in Illinois, 4th edn. (Chicago: Dearborn Real Estate Education, 2001), 107.
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