Encumbrances are legal rights or interests that limit a property’s use or transferability. They can affect property value, ownership rights – and future plans.
Whether you’re buying or selling, learning more about encumbrances in real estate and exploring some common examples and their implications can help you to avoid problems.
Easements are one of the most common types of encumbrances. They grant a specific right to someone other than the property owner to use some portion of the property for a described purpose. Some common examples include:
- Utilities: Utility companies may have easements to access and maintain utility lines that pass through.
- Rights-of-way: These allow individuals or entities to pass through the property, such as for road access or pedestrian pathways.
- Conservation easements: These restrict development or certain activities on the property to protect natural resources or preserve historical landmarks.
Easements can limit the property owner’s use, require maintenance access, or impact future developments. Buyers should carefully review easements to understand any limitations or responsibilities associated with them.
Liens are financial encumbrances that could give a creditor the right to take possession of the property if a debt remains unpaid. Common examples include:
- Mortgages: A lender places a lien on the property as collateral for a mortgage loan.
- Tax liens: If property taxes are unpaid, the government may place a lien on the property, which can result in foreclosure.
- Mechanic’s liens: Contractors or suppliers who have not been paid for work done on the property can file a lien to secure their payment.
Liens can affect property transfers since the outstanding debt needs to be resolved before clear ownership can be established.
Covenants, Conditions, and Restrictions (CC&Rs)
CC&Rs are typically associated with properties in planned communities or subdivisions with HOAs. They establish rules and guidelines for property use, architectural standards, and community regulations. Examples can include:
- Architectural standards: CC&Rs may dictate the design and appearance of structures to maintain aesthetic harmony within the community.
- Use limits: Some CC&Rs limit property use to residential purposes or specify restrictions on home-based businesses.
Buyers should carefully review CC&Rs before purchasing a property to ensure they align with their preferences and intended use.
Conducting thorough due diligence, reviewing title reports and seeking legal guidance are vital steps to better ensure a clear understanding of encumbrances and their implications in any property transaction.