Encumbrance
Any claim, lien, or liability attached to real property that may affect its value or transferability. Encumbrances include mortgages, easements, liens, deed restrictions, and any other interest held by someone other than the owner.
Understanding Encumbrance
Encumbrance is a broad term encompassing anything that burdens property ownership. Financial encumbrances include mortgages, tax liens, judgment liens, and mechanic's liens—claims that must typically be paid before or at sale. Non-financial encumbrances include easements, deed restrictions, and use limitations that affect how property can be used.
Not all encumbrances make title unmarketable. Expected encumbrances like utility easements, standard deed restrictions, and disclosed conditions are typically accepted. Unexpected or undisclosed encumbrances—especially financial ones—create problems.
Title searches aim to discover encumbrances so buyers know what they're getting. Title insurance protects against undiscovered encumbrances. Warranty deeds include covenants against encumbrances—the seller promises there are none except those disclosed.
For investors evaluating properties, understanding the full picture of encumbrances is essential. A property might have clear ownership but significant use restrictions, easements crossing the best building sites, or ongoing obligations that affect value.
Real-World Example
A title search reveals four encumbrances on a property: a mortgage (financial), a utility easement (non-financial), CC&Rs from the subdivision (non-financial), and a judgment lien (financial). The mortgage and judgment lien must be paid at closing. The easement and CC&Rs transfer with the property.
Texas-Specific Information
Texas title commitments list encumbrances as 'Schedule B' exceptions—matters that the title insurance policy won't cover. Standard Texas exceptions include survey matters, easements of record, and deed restrictions. Texas buyers should review Schedule B carefully and request surveys to understand easement impacts.
Related Terms
Lien
A legal claim against property as security for a debt or obligation. Liens give creditors the right to have the property sold to satisfy the debt if the owner doesn't pay. Common liens include mortgages, tax liens, and judgment liens.
Easement
A legal right to use another person's land for a specific purpose. Common easements include utility access, shared driveways, and drainage rights. Easements 'run with the land' and transfer to new owners.
Deed Restriction
A limitation on property use recorded in the deed or a separate declaration. Deed restrictions control what owners can and cannot do with their property, such as architectural standards, permitted uses, and prohibited activities.
Clouded Title
A title with unresolved claims, liens, or defects that cast doubt on the true ownership of property. Clouded titles prevent sales, refinancing, and title insurance until the issues are resolved.
Title Search
An examination of public records to trace the chain of ownership and identify any liens, encumbrances, or defects affecting a property's title. Title searches are essential for real estate transactions and title insurance.
Track Deals Involving Encumbrance
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