Real Estate Encumbrances | They Effect Home Buying & Selling

Real Estate Encumbrances | They Effect Home Buying & Selling

When you decide to purchase a home, you want to ensure everything about the transaction is acceptable. Signing a home contract, only to discover something is structurally wrong with the property is every home buyer's worst nightmare. One often overlooked area where things could go awry in a home purchase, however, is in the home's title.

As a home seller, this is a concern as well. You want to ensure nothing in the title that goes undisclosed, even if by accident, can cause liability for you. Even if you've protected against this, you may want to avoid bad press, so to speak, with respect to your real estate transaction. Particularly if you live in a small town, news travels quickly when someone is dissatisfied. This could be a concern both for your reputation and your ability to enter successfully into future real estate transactions.

While most people are aware of and able to guard against structural defects in a property, encumbrances on the title are another area that warrants special attention. An encumbrance is consequently a technical term in legal circles that refers to anything that adversely affects or limits your property's title. This can include mortgages, leases, easements, liens, restrictions or virtually anything that can make the title transferable.

Here are some things to note about encumbrances. First, liens are the best known and most common encumbrance. They are simply monetary claims by a creditor against a parcel of property, employed to ensure the property owner's debt or obligation. A forced sale of property can sometimes occur in order to satisfy lien-holders. Deed restrictions are also encumbrances, because they create limitations on the property in question. Licenses, on the other hand, are considered a privilege of the person granted the license and can thus be cancelled. Easements are also usually considered encumbrances because they remain active and transfer with the property from owner to subsequent owner.

Consequently, encumbrances are important to note and understand. If restrictive enough, they can make a property's title wholly unmarketable. This could either cost you the sale of your home if you are a seller or the purchase of your new home if you are a buyer. It is prudent to check with your realtor and ensure the property you're either interested in selling or buying is not in any way encumbered before going through with a timely and costly transaction.

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