Encumbrance
Any claim, lien, charge, or liability attached to real property that affects its value or limits its use.
Full Definition
An encumbrance is anything that limits the owner's title or the use of real property. Encumbrances fall into two broad categories: financial encumbrances (liens — monetary claims such as mortgages, tax liens, mechanic's liens, and judgment liens) and non-financial encumbrances (restrictions on use — such as easements, deed restrictions, CC&Rs, encroachments, and leases). Encumbrances do not prevent transfer of title, but they typically run with the land and must be disclosed to buyers. A seller is generally required to convey title free of undisclosed encumbrances. Title insurance protects buyers and lenders against unknown encumbrances discovered after closing.
Real-World Example
A property has three encumbrances: a first mortgage (lien), a utility easement (non-financial), and a deed restriction prohibiting commercial use. The buyer takes title subject to all three.
How Encumbrance Appears on the Real Estate Exam
Common question types, tested concepts, and what to watch out for
All liens are encumbrances, but not all encumbrances are liens. Know common examples of each type. Encumbrances reduce marketability of title but don't prevent the transfer — they simply follow the property.
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