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Encumbrances and Effects on Property Ownership

Encumbrance is Private Limitations on Property Use

An encumbrance is a right or interest in real estate that belongs to someone other than the property owner. Because someone else holds an interest in your property, that right is a limit or restriction on your use of the property. Encumbrances are generally considered private limitations; however, the government can claim your property for unpaid taxes, which is also considered an encumbrance. *

Encumbrance means “something burdensome” or something that bothers something. Encumbrances can be classified in several ways. They may be financial (ex: liens) or non-financial (ex: easements, private restrictions).

An encumbrance is a right to, interest in, or legal liability on real property that does not prohibit passing title to the property but diminishes its value. Alternatively, they may be divided into those that affect title or those that affect the encumbered property’s use or physical condition (ex: restrictions, easements, encroachments).

 
 
 
 
 
 
 
 
 
 
 

Liens

When a lien is attached to real estate, it can limit ownership.

The property can be sold against your will to pay off the debt.

A lien refers to non-possessory security interests.

Liens affect the title.

Priority of liens

This refers to who gets paid first when property is sold against the owner’s wishes to satisfy a number of different debts. It also is referred to as the position of the person being paid, such as the “mortgage is in first position after taxes.”

The first person paid from a court-ordered sale of a piece of real estate is the government. Real estate taxes take first position in the payment of liens. If several liens are attached to the property and one is for unpaid real estate taxes, the real estate taxes are paid first, including any special assessments, or special taxes above and beyond the general real estate tax.

Payment of general and special assessment taxes takes priority over all other liens, regardless of when the liens were attached.

Other than real estate tax liens, all other liens usually are paid off in the order that they were recorded in the appropriate local office of public records — the county clerk’s office or some other office of public records.

 
 
 
 
 

Voluntary Liens

A lien voluntarily placed on a property by a property owner.

A voluntary lien is where the property owner willingly takes some action that enables the placement of a lien against the property. A mortgage is the most common example of a voluntary lien.

mortgage

trust deed

chattel mortgage

Involuntary Liens

A lien placed on the property without the consent of the property owner.

An involuntary lien is placed on the property against the owner’s will.

Judgments. Inheritance taxes and mechanics liens are examples of involuntary liens

Tax liens, imposed to secure payment of a tax

“Weed liens” and “Demolition liens

Homeowner Association

Mechanics lien

Judgments

 
 
 
 
 

One other characteristic of a lien is identifying how many separate pieces of real estate it can be attached to.

Specific Liens

Specific liens are liens specifically on a single property.

General Liens

General liens could be liens on everything you own

A General lien could be a lien on several properties one person owns.  It’s not specific because it is oj several properties, not just one.

All property liens are encumbrances.

 
 
 
 
 
 

Statutory Liens – Automatic

A statutory lien is a lien arising solely because of a statute. It is essentially a lien that is created automatically by operation of a statute or law (meaning it doesn’t require any subsequent judicial action such as a lawsuit or court judgment).

Equitable Liens – Court Ordered

These are liens that are imposed by the court in order to maintain a certain degree of fairness or “equity” in the situation surrounding the property. They usually arise when one person holds possession of property for another person. These situations can often be quite complex, and may involve multiple parties and state laws.

 
 
 
 
 

Priority of Liens

 
 
 
 
 
 
 
 
 

Tax lien

Imposed to secure payment of a tax

Taxes take priority over all liens.

After taxes, liens are paid in the order they were recorded.

A property tax bill or an unpaid mortgage bill may affect ownership.

Tax lien.

These are liens afforded to the IRS (by federal law) or state and local taxing authorities (by state law) for unpaid tax obligations.

 
 
 
 
 

Ad valorem tax lien (ad valorem = according to value)

This is your property taxes paid once a year.

Taxes are to meet the demand of the government.

Ad valorem are specific, involuntary, statutory liens.

Property taxes are liens.

 
 
 
 
 

Special Assessments: A special assessment is an added tax paid for by the people who benefit from an improvement.

A special assessment can be charged to a neighborhood to help pay for new street improvements, sewer lines, or road repairs.

Special assessments lien (improvement taxes)

Only the people who benefit from the improvement pay the special assessments.

When a city builds a new cement walkway down a dirt road, the homes benefiting from the new walkway pay the special assessment. 

 
 
 
 
 

Estate and Inheritance Liens

The last entities to receive money after probate are the heirs. The first liens to be paid are taxes. (Taxes include Ad Valorem and Special Assessments.)

 
 
 
 
 
 
 

Mechanic’s lien.

These liens are afforded to laborers, contractors, or suppliers on your real property if you don’t pay for the construction or materials used to improve the property.

Mechanic’s lien 

Mechanic’s liens on the title to real property are exclusively the result of legislation. Each state has its own laws regarding the creation and enforcement of these liens, but, overall, there are some similar elements among them.

Mechanic’s Liens are for the benefit of those who have supplied labor or materials that improve the property. In the realm of real property, it is called by various names, including, generically, construction lien. It is also called a materialman’s lien or supplier’s lien when referring to those supplying materials, a laborer’s lien when referring to those supplying labor, and a design professional’s lien when referring to architects or designers who contribute to a work of improvement.

When a mechanic’s lien is filed for the non-payment of labor or materials used to improve a property, the effective date of the lien is the date the improvement, work or materials were furnished. 

 
 
 
 
 

Judgment lien

Imposed to secure payment of a judgment

 
 
 
 
 

Lis pendens – lawsuit pending

a lawsuit has been filed

A foreclosure can wipe out a lis pendens.

A current lawsuit on real property is called a Lis pendens. (Litigation Pending)

 
 
 

Other Liens

Landlord’s lien.

Your landlord may have a statutory lien on your personal property located in the house or apartment if you don’t pay your rent.

Vendor’s lien.

If you are buying real property but fail to pay the full purchase price, the seller is afforded a lien on the property.

Mortgage lien

A security interest in real property held by a lender as a security for a debt, usually a loan of money. A mortgage in itself is not a debt, it is the lender’s security for a debt. It is a transfer of an interest in land (or the equivalent) from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.

Homeowner Association (HOA) lien

For unpaid assessments, fines, late charges, interest, costs, and attorney fees.

Weed liens” and “Demolition lien

Assessed by the government to rectify a property from being a nuisance and public hazard

A Specific lien is specifically attached to the Property.

Example

voluntary, specific lien would be financing a swimming pool.

 

Example

An involuntary specific lien would be taxes or a mechanics lien.

 
 
 
 
 
 

Not all encumbrances are liens. (easements, encroachments)

 

Easements

Appurtenant means “in addition to” or “belonging to”

Easement is most like a “right of way”.

Easements “run with the land”, meaning that when a real estate owner sells the property, the easement automatically transfers with the property deed.

An easement is annexed to ownership.  It is a right to use another’s land.

There must be at least two properties to have an easement appurtenant.

An easement is recorded and in your deed.

 
 
 
 

Easements Run with the Land

 

Creating an Easement

  • By express grant in a deed from the owner of the property.
  • By express reservation by the grantor in a deed of conveyance.
  • By use.
  • By implication.
 
 
 
 
 

Servient Tenement

The burdened land.

The tenement on which the easement is placed.

The easement on the servient tenement is an encumbrance.

Dominant Tenement

The tenement that benefits from the easement.

Easements are for Ingress and Egress

In and Exit

In an easement appurtenant, the two tracts of land can be contiguous or noncontiguous.

 

An easement to a dominant tenement is an appurtenance. 

An easement to a servient tenement is an encumbrance.

 
 
 
 
 

In an easement appurtenant, the two tracts of land can be contiguous or noncontiguous.

Noncontiguous:

Things not side by side.

In an easement appurtenant, the two tracts of land can be contiguous or noncontiguous.

*Bob owns his home in a lake front community in addition to a non-contiguous easement appurtenant for access to the lake.  Or Bob owns his home in addition to a “right of way” over his neighbor’s property in order to access the lake.  (For ingress and egress.)

 
 
 
 
 

TYPES OF EASEMENTS  

Easement in Gross

Frequently for utilities Utility Company Access. There is no dominant tenement. All of the homes up against a Gross Easement are Servient Tenements.

When a gas company wants to bury its pipes over property of several homes, they will apply for an easement in gross.

There is no dominant tenement in an Easement in Gross.

A water company may lay pipes upon private Property through an easement in gross

BTW.  The water company is a non-profit.

A private limitation would be a deed restriction. 

Example:

(I can’t cut down my oak trees.)

 
 
 
 
 

The wall on the between two townhomes (garden homes) is called a party wall.

 
 
 
 
 

Easement by Necessity

Land locked property.  It is because owners must have ingress to and egress from their land.

 

An easement by necessity is essential to landlocked property.

A property cannot be landlocked.

 
 
 
 

Easement by Prescription – Prescriptive Easement

Continuous usage, without the owner’s approval.  It’s usage that is visible, open and notorious.  It’s based on the principles of Adverse Possession.  It’s when someone has been using another’s property for a long period of time.   *Bob was driving over the northeast corner of Al’s property for 10 years.  Al knew about it but didn’t like it.  Al never said anything to Bob.  One day, Al decided he wanted to build a home for his daughter on that portion of land that Bob has been driving over.  Al asked Bob to stop using his property.  Bob took Al to court and was granted permission to continue to drive over Al’s property.  Al’s intention to build his daughter a new home on that section of land had to be abandoned.  Bob was granted an PRESCRIPTIVE EASEMENT

An easement created by adverse use is a Prescriptive Easement. (Easement by Prescription)

 

Sharing a driveway is an encumbrance. 

 
 
 
 

Adverse Possession

A way of taking title to another person’s property by the open, continuous, notorious and hostile use of another person’s property for a statutory period of time.

 
 
 
 
 

Terminating an Easement

  • When the purpose for which it was created no longer exists.
  • MERGING OF TITLES
  • By release of the right of easement to the owner of the servient tenement.
  • By abandonment
  • By the non-use of a prescriptive easement by its owner.
  • By adverse possession
  • By destruction of the servient tenement (for instance, party wall).
  • By court decision of a quiet title action against someone claiming an easement.
  • By excessive use (possibly a change in land use).
  • When the Dominant Tenement Easement user releases the easement in favor of the owner of the Servient Tenement
 
 
 
 
 

A truck driver has an easement over his neighbor’s property to store his large truck when he is not working.

The easement may be terminated if the man sells his truck and retires. (Or the merging of titles.)

An easement can end when there is no need for it anymore.

Easements can end with a “merger of title”.  It means a buyer purchased both properties.

 
 
 
 
 

Encroachment

An encroachment is an improvement over onto another’s property

The best way to find an encroachment is to hire a surveyor.

Bob’s garage extended onto Sally’s property.  It is an encroachment

If many years go by and nothing is done to remove the overextending garage, Bob may be granted a prescriptive easement.

The best way to find an encroachment is to hire a surveyor.

If a homeowner is concerned that the construction project next door is encroaching on her property, she should hire a surveyor. 

 
 
 
 
 
 

License

A license is a temporary right to use the land of another.

A revocable right to use another’s land for a specific reason.

Bob allowed Tom to hunt on his farm during hunting season. This is a license. A license is a revocable right that is temporary.

 
 
 
 
 

 Tacking is a factor that allows for the addition of the times during which several different owners continuously engage in the same use. So, if five different successive owners use your property for the prescribed period of time — for example, your state’s ten-year requirement — the latest owner’s request for an easement can be granted by the court. *

Restrictive covenants and shared driveways are encumbrances on the property. (An encumbrance is something that bothers the property.)