Real estate encumbrances are common limitations on a property. So, what exactly are they and how do they work? Watch this video above to learn about the types of real estate encumbrances and their functionality in the industry. Subscribe here!
Purchasing property is a big investment. When your client spends money on a property, they want to have full access to the land. However, there are legal restrictions that can limit their ownership of the land.
These limitations are called real estate encumbrances.
If you are unaware of encumbrances, you should know how they work. Without knowing, your client can spend their biggest investment on a home they don’t fully own.
What is an Encumbrance in Real Estate?
Real estate encumbrances are a burden, liability, or claim on a property. They come in many forms. Some of which could prevent you from transferring the title of the property to another owner.
Real estate encumbrances are considered to be bad. Because of the burden they have on a property, they can restrict the freedoms the owner has on it. You can guess the homebuyer won’t be happy about restrictions when they make the biggest investment of their life.
However, some encumbrances can be a good thing. When working with real estate encumbrances, know what your buyer wants, do your research, and disclose everything. Doing so will save you and your buyer.
Types of Real Estate Encumbrances
Real estate 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 Restriction in Real Estate
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 in real estate 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.
Some homebuyers will seek out deed restrictions. This is because they want to live in a neighborhood with a special design, layout, and order. This is good news for some.
Easements in Real Estate
An easement allows third parties to use a property without ownership. This grants a party, unrelated to the owners, access to the property. This is also a very common real estate encumbrance and comes in many shapes and forms.
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 in Real Estate
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.
Liens in Real Estate
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, your client’s property is given a lien if they have not made a mortgage payment. When a lien goes unpaid, the property would go through a foreclosure sale with the money going towards the unpaid debts.
Licenses in Real Estate
Licenses are 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.
Final Thoughts on Real Estate Encumbrances
Knowing what real estate encumbrances are on a property is important. You need to be clear and transparent with your client so they aren’t surprised by any sudden restrictions and limitations on their homeownership. That’s why you should conduct research and investigate the title to know what encumbrances are on the property.
Now that you know the different types of real estate encumbrances, you will have a vernacular for explaining them to your client. The more you know, the more value you can give. Always be a resources to your client and others who have questions about real estate.
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