Imagine all your hardworks pay-off and you’ve found the perfect property that you wanted to buy for a long time, either a dream home or a land for investment. You’re ready to close the deal, however, during the due diligence process, you discover that there’s a problem such as there’s a lien on the property due to unpaid taxes, an encroachment issue with a neighboring property, and a right of way easement that limits your use of the land. Suddenly, the excitement of purchasing your dream property turns into a nightmare of a complicated process. These are all examples of encumbrance, in which legal claims or liabilities can affect your ownership and enjoyment of your real property.
Understanding these types of encumbrances and how to resolve them is important for anyone involved in real estate transactions, whether you’re a buyer, seller, or property owner. This article will help you understand the meaning of encumbrances, their types, and how this could affect your property transactions, along with how Filedocsphil can assist you in managing these burdens.
What is an Encumbrance?
In legal terms, an encumbrance is a claim or restriction that affects your ability to transfer or enjoy the property fully. In other words, it is a burden on the property’s title because it is typically recorded in the property’s official records which may have potential impacts. It doesn’t prevent the transfer of ownership but can affect the value and use of the property.
This encumbers property owners in several ways, such as restricting property use, reducing market value, creating legal and financial obligations, complicating transfer or sale, and adding legal risk and disputes.
Different Types of Encumbrances
There are various types of encumbrances due to the diverse uses of property. These encumbrances protect the interests of different parties and clarify the nature and scope of each claim. They outline the rights, restrictions, and obligations associated with the property, ensuring that all parties involved are fully aware of the specific details of these claims. This way, encumbrances are important in maintaining transparency and legal clarity in property transactions.
Take note that not all forms of encumbrance are financial. Here are some of the common types of encumbrances that may be present and annotated in your property title:
Lien
Liens are a common form of financial encumbrance, representing a legal right to use or claim against a property due to an unpaid debt. They are usually recorded in public records and can affect the property’s title. Here are the examples of liens;
- Mortgage Liens: These arise when a property is used as collateral for a loan. The mortgage lien gives the lender the right to take ownership of the property if the borrower defaults on the loan. The primary purpose of a mortgage lien is to secure the repayment of the loan.
- Tax Liens: Imposed by government authorities when property taxes are unpaid. Tax liens have a high priority and must be settled before transferring property ownership. Their purpose is to ensure the government can collect due taxes.
- Mechanic’s Liens: Filed by contractors or suppliers who have not been paid for work or materials provided to improve a property. This lien ensures that those who contribute labor or materials are compensated for their services.
Easements
This type of encumbrance refers to the specific rights of a person over another person’s property, or preventing the owner from enjoying the use of a property fully. It is commonly classified into two main types: affirmative and negative easements. Each serves different purposes and can impact how a property is used.
- Affirmative Easements. An affirmative easement allows the holder to perform a specific action on another person’s property. These easements provide the easement holder with certain rights of use that they would not have without the easement. The primary purpose of affirmative easements is to allow certain activities that benefit the easement holder without transferring ownership of the property. These easements are often crucial for ensuring access and utility services, which can enhance the usability and value of a property.
- Negative Easements. A negative easement, on the other hand, restricts the property owner from engaging in specific actions on their own property. This type of easement typically benefits neighboring properties or the public by preventing actions that could be detrimental. It limits certain uses of a property to protect the interests of others, such as neighboring property owners or the general public. By restricting specific actions, negative easements can preserve natural resources or maintain the character of a neighborhood.
Encroachment
This occurs when a physical structure or improvement made by a party who is not the owner of the property extends onto another’s property, either due to boundary disputes or construction errors—structures such as fences, buildings, or driveways.
Restrictive Covenants
These are typically laws or restrictions set by developers or homeowners on how the buyer may use the property to maintain certain standards within a community. These can be applied to properties in planned communities, condominiums, or subdivisions.
How does an encumbrance affect Your property?
- Reduction of Market Value of your Property. Encumbrances can significantly reduce the marketability of your property. Potential buyers or investors may reduce their interest because of their existence.
- Limit the Use of Property. The existence of such encumbrances can limit on how you can utilize the property because of the imposed restrictions.
- Complications in Sale or Transfer of Property. These can complicate property transactions such as sales or transfers. Any existing encumbrances must be disclosed to potential buyers, which can cause delays and increased costs for the seller.
How to Remove Encumbrance on Your Property?
Addressing any such encumbrances can vary depending on the type. Removal of an encumbrance of such liens may involve paying outstanding debts. This requires negotiation with creditors or paying the lien amount in full. In such cases as easements, negotiation with the party involved is required for modification or removal. Others require legal action for cases involving disputes or encroachments.
Sounds Overwhelming? It doesn’t have to be!
Given the complexities associated with encumbrances, it’s advisable to seek professional assistance. Here at Filedocsphil, in coordination with Duran & Duran-Schulze Law, our experienced team of lawyers and professionals is here to make it seamless and hassle-free. We provide invaluable support in identifying and resolving encumbrances.
Let FileDocsPhil Do the Work!
Need further information and assistance in removing Encumbrances? Talk to our team at FILEDOCSPHIL to know more about the requirements and process. Call us today at (+63) 917 149 2337 or send an email to info@filedocsphil.com or simply message us through the live chat for more information.