Monarch Title Company is an integral part of the home buying process. One of our responsibilities is to perform a comprehensive title search to discover any recorded liens and encumbrances. Due to the nature of a lien and encumbrance to throw a big wrench in a sale, it is important to get Monarch Title involved as soon as possible. This way, any liens and encumbrances that come to light in the title search can be addressed efficiently and appropriately.
In addition to a title search, liens and encumbrances are discussed and addressed when you are purchasing title insurance. These are typically categorized as exceptions on the policy. Many of these are standard, such as easements, and do not deter the home buyer from making the purchase.
Liens and encumbrances are two terms associated with real estate that all people involved in a home purchase should understand. Since liens and encumbrances are directly related to property ownership, it is important to know the difference between the terms to have a clear understanding of what is involved in one of the most important purchases of your life.
WHAT IS AN ENCUMBRANCE?
An encumbrance is a claim or other type of issue that restrains or burdens your full ownership rights to a property. It is a broad term and can reflect either a monetary-related issue such as a loan or a non-monetary claim related to the property.
TYPES OF ENCUMBRANCES:
Liens and encumbrances can often get confused. A lien is a type of encumbrance, but an encumbrance is not necessarily a lien. Here are the types of encumbrances to clear up any confusion:
A lien is a monetary claim against a property agreed to by the owner acquired by a creditor. Its purpose is to ensure payment. For example, a lien can be used to guarantee the repayment of a loan. If that loan is not satisfied, then the creditor may be legally able to seize the property. When there is a lien attached to a property, that lien must be satisfied for the real estate transaction to close. This can be done prior to closing or through using funds from the proceeds of the sale as a settlement.
Types of liens that may be initiated include failure to make payments on an auto loan, past-due child support, unpaid homeowners association fees, or unpaid property taxes.
An easement is a type of encumbrance that is not a right to ownership but a right to use a property. The most common type of easement is one designated for utility companies such as water, cable, and electricity. An easement can also be in the form of a right of way where someone is permitted to cross the land. Some easements will be on the official title report, but others may not be. These could be such circumstances as shared roads or driveways.
Liens and encumbrances should always be considered and dealt with appropriately during the home buying process. Some may be unwelcome surprises that need to be dealt with before closing, and others may be negotiated or included within the sale without much difficulty. Understanding the impact of liens and encumbrances going into a real estate transaction is central to making that home sale a success.