Understanding encumberances
Q: My daughter is about to make an offer on a house that she really likes but is worried because she was told the property was encumbered. She asked her father and me what that meant. I thought it meant that there was an easement and conjectured that it was probably a right of way to get to utilities. My husband says that is it is a lien and that some contractor had not been paid. Who is right?
A: It isn’t possible to know who is “right” without additional information about the specific property. One or both of you might be correct, or neither.
An encumbrance is an obligation that is attached to real property. It is held by a party who is not the owner of the property but it is not an ownership interest. One of the more common forms of an encumbrance is an easement.
An easement gives the holder of the easement the right to use another person’s land for a particular purpose. There are many forms of easements. You are correct that public utility companies frequently have utility easements. These allow them to run water, gas or electrical lines through property they do not own.
Some easements are “right of way” and permit access. The owner of property on the Gulf might sell to the owner of an adjacent lot without Gulf access an easement to cross over to the shore.
Encumbrances attach to property, not property owners, so a person who buys property with an encumbrance is bound by the encumbrance. The property may be bought and sold even though there are encumbrances attached to the property.
Another type of encumbrance is a lien. This is a charge against property that provides security for a debt or obligation of the property owner but the lien holder does not own the property. The current owner of the property that your daughter is considering may have voluntarily agreed to a lien. For example, some mortgages provide the mortgage holder with additional rights if the property is sold or encumbered further.
A lien can also be imposed, such as for nonpayment of taxes. Your husband is on the right track, because one of the most common liens is a construction lien, often referred to as a mechanics lien. A construction lien may be imposed when someone furnishes labor or materials to improve a piece of property and is not paid. The lien would be satisfied by the current owner at the time of closing.
Your daughter would be wise to ask a few questions about the encumbrance. Chances are that it is a simple thing and not worrisome enough to preclude her buying the property that she likes. If in doubt, she should seek the help of an attorney before making an offer.
Attorney Sylvia Heldreth is a Certified Specialist in Real Estate Law. Her office is located at 1215 Miramar Street in Cape Coral.
This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law