Real Estate Exam: Encumbrances, Liens, Easements, Deed Restrictions Explained

An encumbrance is any claim, lien, charge, or liability attached to real property that may diminish its value or restrict its use but does not necessarily prevent transfer of title. Encumbrances fall into two categories: financial encumbrances like liens and mortgages that affect the property's monetary value, and non-financial encumbrances like easements, deed restrictions, and encroachments that affect the property's use. A property can have multiple encumbrances simultaneously. Title searches reveal recorded encumbrances so buyers know what limitations exist before purchasing.

A general lien attaches to all of a debtor's property, both real and personal, rather than to one specific parcel. Examples include judgment liens, federal and state tax liens, and estate liens. A specific lien attaches only to one identified property. Examples include mortgage liens, property tax liens, and mechanic's liens. The distinction matters for priority and enforcement: a specific lien holder can force the sale of only the identified property, while a general lien holder can potentially reach any asset the debtor owns to satisfy the debt.

A mechanic's lien is a specific, involuntary lien that protects contractors, subcontractors, laborers, and material suppliers who have provided work or materials to improve real property but have not been paid. The lien attaches to the property itself, not to the owner personally, meaning the property can be sold to satisfy the unpaid debt. Filing requirements vary by state but generally require a notice of intent and filing within a statutory deadline after work completion. Mechanic's liens can take priority over mortgages in some states if the work began before the mortgage was recorded.

Lien priority determines the order in which liens are paid when a property is sold, typically at foreclosure. The general rule is first in time, first in right, meaning liens are paid in the order they were recorded. However, property tax liens and special assessment liens always take first priority regardless of recording date. After taxes, liens are paid in chronological order of recording until the sale proceeds are exhausted. Junior liens may receive nothing if proceeds are insufficient.

An easement is a non-possessory right to use another person's land for a specific purpose without owning it. Common examples include utility easements allowing power companies to run lines, access easements granting passage across a neighbor's land, and drainage easements for water management. The property burdened by the easement is the servient estate, and the property benefiting is the dominant estate. Easements appurtenant run with the land and transfer automatically with ownership, while easements in gross benefit a specific person or company and do not attach to a particular parcel.

An easement appurtenant benefits a specific neighboring property and involves two parcels: the dominant estate that benefits and the servient estate that is burdened. It runs with the land, meaning it transfers automatically when either property is sold. An easement in gross benefits a specific person or company rather than a neighboring property, such as a utility company's right to maintain power lines. Commercial easements in gross are generally assignable, while personal easements in gross typically are not. Most easements encountered in residential real estate are appurtenant.

An easement by prescription is created when someone uses another person's land openly, continuously, and without permission for a statutory period, similar to adverse possession but without claiming ownership. The use must be actual, open and notorious so the owner could discover it, hostile meaning without the owner's consent, and continuous for the period required by state law, typically ranging from five to twenty years. A common example is a neighbor who has used a path across your land to reach a road for fifteen years.

Deed restrictions, also called restrictive covenants or CC and Rs, are private limitations on property use written into the deed or recorded in subdivision declarations. Common restrictions include minimum square footage for homes, approved building materials, prohibition of certain uses like commercial activity, and requirements to maintain landscaping. They run with the land and bind all future owners. Deed restrictions are enforced by other property owners in the subdivision through civil lawsuits, not by the government.

An encroachment occurs when a structure or improvement physically extends onto a neighboring property without permission, such as a fence built two feet past the boundary line or a roof overhang extending over the property line. Unlike an easement, which is a legal right to use another's land, an encroachment is typically unauthorized and can be grounds for legal action. Encroachments are discovered through surveys and must be resolved before closing in most transactions.

A lis pendens, Latin for "pending litigation," is a recorded notice that a lawsuit has been filed involving title to or an interest in a specific property. It warns potential buyers and lenders that the property is subject to a legal dispute that could affect ownership. A lis pendens does not prevent the sale of property but makes it practically unsaleable because title companies will not insure title and lenders will not approve mortgages while the notice is in place. It is removed when the lawsuit is resolved, dismissed, or when a court orders its release.

An involuntary lien is placed on property without the owner's consent, typically by operation of law or court order. Common examples include property tax liens for unpaid taxes, mechanic's liens for unpaid construction work, judgment liens resulting from court rulings against the owner, and federal or state tax liens from the Internal Revenue Service or state tax authorities. Involuntary liens differ from voluntary liens like mortgages, which the owner willingly agrees to. All involuntary liens must be satisfied or released before clear title can be conveyed to a buyer. ---