Encumbrance

In depth

Encumbrances include mortgages, judgment liens, tax liens, easements, deed restrictions, leases, and HOA covenants. They limit the owner's use or burden the title. Misconception: not all encumbrances are bad; benign encumbrances like utility easements rarely affect value, while monetary liens reduce net proceeds at sale. Practically, title searches identify recorded encumbrances. The title commitment lists requirements (encumbrances to be cleared before closing) and exceptions (encumbrances surviving closing). FSBO sellers should know all encumbrances on their property to disclose accurately and budget for satisfaction. In seller-financed deals, the seller's existing mortgage is an encumbrance that must be subordinated, paid off, or wrapped. Buyers should review the title commitment carefully.