Robert Rico breaks down what an encumbrance is and the types of encumbrances. This is episode one of a brand new series on encumbrances and how you can identify them in your Real Estate Career. Subscribe here!
Purchasing a property is a considerable commitment. When you spend money on a property, you would, of course, want to have full access to the land. However, there are legal restriction on your ability to access the property.
These are called encumbrances.
An encumbrance is more than just a fancy real estate terminology word. It’s a legal restriction that property owners experience. Encumbrances come in many forms. Some of which could prevent you from transferring the title of the property to another owner.
Understanding real estate law is an important part to becoming a successful real estate agent. We’re breaking down the term and the different types of encumbrances, so you know exactly what to expect when dealing with an encumbrance.
Types of Encumbrances
Encumbrances are legal restrictions that prohibit specific use of a property. They come in many shapes and forms, therefore you could deal with different types of encumbrances based on your own scenario. Below, we’ve defined the types of encumbrances you would experience in the real estate industry.
Deed restrictions are agreed upon rules that the homeowner must follow to own a property. These restrictions are unique in every situation. However, some common examples include where homeowners can park their vehicles or whether they can perform construction projects.
Deed restrictions create a standardized use of the property in a specific area. Therefore, some properties must follow regulation in order for property owners to occupy the space. This is to preserve the property value of the land.
An easement allows third parties to use a property without ownership. This grants a party, unrelated to the owners, access to the property.
A common example of an easement is when a utility company will need access to the land for an installation project. As a result, they will have a right of way to access the property to fulfill the project requirements. Another example is when a homeowner grants a neighbor access to their driveway for passage to their property.
Encroachments is related to the property borders between two neighbors. When a tree branch is hanging over the property line, this is considered an encroachment. Often times, homeowners will install fences as a means to specify the property border between two adjacent lands.
Encroachments are noted when a land surveyor examines the property before the transfer of ownership. Moreover, homeowners could request the property encroachment to be removed. An example of this is cutting a branch that is hanging over a fence.
A lien is a restriction placed on the property based on unpaid finances. Liens are created to incentive property owners to repay money owed to another party. In other words, a property would be given a lien when the owners have not paid off a debt.
Examples include unpaid mortgages, taxes, or money owed from a contract services. Therefore, if you have not made a mortgage payment, your property would be given a lien. When a lien goes unpaid, the property would go through a foreclosure sale with the money going towards the unpaid debts.
Licenses is a verbal or written permission to have access to the property owners’ land. It’s a mutual agreement between two parties. For example, a homeowner might give permission to their neighbor to store their personal items in their garage or on their property.
Moreover, a license can be revoked at any time. The homeowner, granting permission, can withdraw their offer whenever they feel it is necessary to do so.
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