What Does Encumbrance Mean In Real Estate?
For most real estate transactions in the United States, homebuyers will take on at least one encumbrance, as Endpoint Closing noted. But, what exactly is an encumbrance? The word encumbrance, like many terms used in real estate, legal contexts, and commercial transactions has a specific meaning. The term encumbrance refers to a form of legal, economic, or personal responsibility. As a result of this personal responsibility, certain limits also exist with respect to how a property owner's property may be used or transferred. The Merriam-Webster dictionary described an encumbrance as a barrier, signaling the potential burdening capacity of encumbrances. The popular dictionary also noted that the year 1535 was the first known usage of the word encumbrance.
Investopedia has also explored the concept of an encumbrance. According to the outlet, an encumbrance is a claim against a type of property. The person who has this claim, though, is not the owner of the property.
Many encumbrance types exist
In an interpersonal sense, an encumbrance may be thought of as a real estate version of a lingering ex-boyfriend or ex-girlfriend. One person may want to move forward with other relationships (like deals). However, that progression process can be more complicated if and when the prior interpersonal situation (like a legal claim) remains unresolved.
And as Endpoint Closing alluded to, homebuyers should understand that different types of encumbrances exist. Beyond knowing that various kinds of encumbrances exist though, homebuyers may also want to learn about how their encumbrances can influence the sale or transfer of their property. Some examples of encumbrance types include mortgages, easements, and property tax liens, as Investopedia detailed.
Encumbrances can attach to both real estate and personal property. This means it is possible for someone else to retain an interest in another person's items. Investopedia further detailed that an easement can reference restricted monetary sources inside of an account that must also be reserved to resolve a certain obligation.