When buying real estate, especially your first home, there is a pile of paperwork, and there are some terms that may be new to you as a buyer. One of those terms is "encumbrance." An encumbrance is a claim against, limitation on, or liability against real estate. Encumbrances are common, and one or more are involved in most real estate transactions.

Liens

Liens are created against real property in a number of ways. They are placed to guarantee a mortgage or other loan. There are also mechanics' liens created by tradespeople when a homeowner orders work on the home and don't pay the bill as agreed. Non-payment of real estate taxes can result in a lien for the amount owed plus penalties and interest. A homeowner association or condominium association can place a lien against a property for past due fees or dues. A lawsuit that results in a judgment against the homeowner can also result in a lien for the amount of the judgment.

When you're buying a home or land, you will receive a title insurance binder or abstract of title that shows all liens outstanding against a property. The title insurance company will require that all liens be paid off or forgiven before issuance of a title insurance policy. The most common one is to have the existing sellers' mortgage paid off when the ownership of the home is transferred.

Deed Restrictions

Deed restrictions aren't as common, but you may encounter them. They pass with the land and cannot be removed, so a buyer should be aware of them and willing to buy anyway. They are most often a part of a large land sale, especially when the land is to be divided and sold in smaller parcels. An example would be a ranch owner who sells a large ranch to a developer, but the seller never wants anything on the land except single-family homes on parcels no smaller than one acre. Deed restrictions limit the use of property, so they are encumbrances.

Easements

Easements are very common. An easement grants permission for an entity other than the property owner to use or access a portion of the property. Utility easements are the most common. When you buy a home, the gas, electric, water, and sewer providers have easements to portions of your property to run their lines and to maintain them. Sometimes, mostly in rural areas, a neighbor may have an easement to a road along your common property line as their access to their property.

Encroachments

Encroachments are intrusions on a property. An example would be a neighbor building a fence along what they thought was the property line, but they ended up with the fence a foot into your property. Another less common is an encroachment of a structure, perhaps a neighbor's new utility building sitting half on your land. Even air rights encroachments exist. In one case, a home was built with an eave over the property line.

All of these examples are encumbrances on the ownership and use of real property. Some can be resolved, and others will always attach to the property for future owners. Be sure to read documents carefully to be sure that you can live with any encumbrances. The title insurer will bring them to your attention.