What Does "Encumbrances" Mean in Real Estate?

When you buy or sell a property, you need to know about any claims non-owners may have on it. Real estate is said to have an "encumbrance" when someone can make a claim regarding the use of the property. There are several types of these encumbrances. Encumbrances may apply not only to the person selling the property, but to the new owner as well.

Liens

A lien is a financial claim on a property. The most common lien is a mortgage. This lien indicates that if the property is sold, the mortgage holder must be paid from the proceeds. A tax lien may be levied by the Internal Revenue Service, state governments, county agencies and municipalities. This lien is for back taxes, and the seller must satisfy such a lien from proceeds from the sale. A mechanics lien results from a contractor claiming he was not paid for work. He can place a lien on the property guaranteeing that he will be paid when the property is sold.

Easements

An easement gives someone who doesn't own the property the right to use a part of the land. For example, a neighbor may have a right to drive across one edge of a property to get to a home that is behind it. Other examples include beach access and utility company rights to run wires and put up poles. Easements belong to the property. In other words, if the property is sold, the easement rights remain in place and don't have to be negotiated with the new owner.

Deed Restrictions

Deed restrictions protect property values in the neighborhood. These restrictions are sometimes called restrictive covenants. For example, a homeowner's association may limit areas the owner can use for parking cars. Use and placement of satellite dishes may also be restricted. The owner can also be restricted to using the property for residential purposes only, or for business purposes only.

Encroachments

In an encroachment, one property has extended over the boundary of another. Examples include fences that cross a property line or trees whose branches hang over an adjacent property. An encroachment can hold back a sale or reduce the value of the property. The adjacent owner can ask for the encroachment to be removed or request compensation for the encroachment. Such encroachments usually get discovered when a surveyor examines the property so the seller can be sure the property is free of problems. In other words, encroachments are typically accidental and remain undiscovered until the owner wants to sell.

Licenses

A license is permission granted by the owner for someone else to use the property. An example would be permission for the neighbor to park a car on the property. A license does not transfer with the sale of the property, so the person using the property must renegotiate with the new owner for permission to continue the license.

Photo Credits

  • David Sacks/Lifesize/Getty Images

About the Author

Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.