When you’re trying to close on a residential or commercial property, the last thing you want to hear is that there are encumbrances against it. An encumbrance is a claim or liability against, or limitation on a piece of real estate. Depending on the type, it can lessen the value of the property, affect its use, and even limit the seller’s ability to transfer title to it.
Below are 4 common real estate encumbrances that you should be aware of when you’re buying property in Texas.
Liens
A lien is a type of monetary claim against a piece of real estate. Its purpose is to secure a debt or obligation incurred by the property owner and, as such, affects title to the property. If the financial obligation isn’t met, creditors can seize and sell the asset to recoup as much of the debt as possible.
Mortgages are the most common liens against real estate. When a buyer takes out a mortgage, the lender retains an interest in the house’s title until the mortgage is paid off. If the borrower cannot repay the loan, the lender may foreclose and evict the residents.
Other examples include:
- Tax liens, which are imposed by the government to collect unpaid taxes
- Mechanic’s liens, which can be placed on the title by contractors who worked on the property and did not get paid as agreed
- Judgment liens, which are secured against a defendant’s assets in a lawsuit
Texas law protects a homestead from being seized to satisfy most creditor claims, like a judgment lien, but there are certain steps that must be taken to release the homestead property from the judgment lien.
A new buyer cannot take clear title to a home unless all liens against it are satisfied. Usually, these liens are paid and satisfied at closing. A title company will not issue title insurance without the lien being paid at closing, which is another good reason for insisting on title insurance if you are a buyer.
Restrictive Covenants
Restrictive covenants limit how a property may be used and what kind of structures may be built upon it. They are especially common in areas where new subdivisions are being developed, as builders and developers strive to maintain certain standards of construction. Other covenants, such as ones governing use, may prohibit the manner in which you use the property, such as restricting commercial operations, certain livestock, or other activities. It is important to read the restrictive covenants affecting property that you intend to buy, to ascertain that your intended use of or construction on the property will not be prohibited.
Easements
An easement refers to someone’s right to use real estate owned by another party. There are two primary types:
- Easements in gross, which involve utilities. For example, the right of a gas company to lay pipelines or an electric company to install power lines. These easements may be transferred or sold.
- Appurtenant easements, which come into effect when two properties are side by side and one owner has rights to use the property of the other. A common example is building a driveway that runs through a neighbor’s property.
While easements generally won’t impact your ability to take title to a house, they can affect the property’s perceived value to buyers should you eventually decide to sell.
Encroachments
Encroachments are a type of encumbrance that can create title transfer issues. For example, if the corner of the house is actually across a surveyed boundary line, the owner of the encroached upon property could file a lawsuit for damages or compel the other owner to eliminate the encroachment. Common encroachments on rural property include fence encroachments, where the fence was not built exactly on the surveyed boundary line. These encumbrances are usually unintentional and only come to light during a pre-sale survey.
Encumbrances can be a frustrating and costly obstacle between you and the commercial or residential property you are trying to buy. We will work with you to check the property’s title status, so that you are not buying into a future problem, ensure that you understand any and all restrictions on use, and help resolve lien issues so that your ability to take title to the property is clear. To schedule a consultation, call us at (254) 965-7270 today.
