Property Encumbrances and Legal Restrictions

A property title gives an owner many rights, but rarely are those rights absolute. Encumbrances and legal restrictions are the hidden strings attached to real estate that can limit use, reduce marketability, or create obligations for current and future owners. Understanding what these burdens are, how they arise, and how to manage them is essential whether you are buying, selling, financing, or developing property.

What Is an Encumbrance

An encumbrance is any legal claim, interest, or restriction on real property that limits the owner's free use or diminishes the value of the title without necessarily preventing transfer of ownership.

Encumbrances are nonpossessory burdens, as they typically bind future owners as well as the present one. They appear in public records, on surveys, or through long-standing use, and they matter because they shape what you can build, who can use portions of the land, and how easily the property can be sold or financed.

Examples of encumbrances include:

Liens for unpaid debts
Easements granting access or usage rights
Restrictive covenants limiting property use
Encroachments involving property boundary disputes

Encumbrances vs. Easements vs. Liens

Although related, encumbrances, easements, and liens have distinct implications. Encumbrance is an umbrella term that may be used for any burden on title that affects property use or transfer.

Easement refers to a nonpossessory right allowing a person or entity to use a portion of a property for a specific purpose. It is usually recorded, can prevent a use, or affirm the right to use. It may also be exclusive or nonexclusive. Additionally, it may be permanent and transferable unless specifically limited. Examples of easements include utility easements, access rights-of-way, and conservation easements.

A lien is a security interest placed on property to secure payment of a debt or judgment. It is financial in nature and can lead to enforcement through sale or foreclosure if not satisfied. Examples include mortgage liens, tax liens, mechanic's liens, and judgment liens.

Note that all easements and liens are types of encumbrances, but not all encumbrances are easements or liens.

Restrictive Covenants

Restrictive covenants, also called deed restrictions or CC&Rs (Covenants, Conditions, and Restrictions), are private rules attached to the deed of a property that limit how the land or structure can be used. Restrictive covenants are common in planned communities or under HOAs (homeowners' associations). These restrictions can be enforced through civil court actions, and failure to comply may result in fines, lawsuits, or even forced modification.

Common examples of restrictive covenants include:

Limits on paint colors, fencing, or landscaping
Prohibitions against commercial use or short-term rentals
Setback requirements or architectural approval processes

Encroachments and Boundary Conflicts

An encroachment occurs when a structure, fence, driveway, or landscaping intrudes onto an adjacent property. Encroachments can be accidental or the result of shifting boundaries over time. Also, boundary conflicts may arise from ambiguous legal descriptions, outdated surveys, or neighbor disagreements about use.

Immediate risks of encroachments include liability for trespass, forced removal of the encroaching structure, and payment of damages. However, long-term outcomes may include adverse possession claims if an encroachment is open, continuous, and meets statutory time periods.

Remedies for encroachments include negotiation and boundary agreements, relocation or removal of encroachment, quiet-title actions to clarify ownership, and obtaining a retrospective easement or license to legitimize the use.

Impact on Ownership, Transfer, and Refinancing

Encumbrances can significantly affect property transactions and refinancing by:

Delaying or blocking closings: Buyers may be unwilling to proceed if the title is not clear.
Affecting financing: Lenders usually require removal or subordination of liens before approving loans.
Reducing value or usability: Easements or zoning restrictions may prevent desired improvements or development.
Triggering disclosure obligations: Sellers must disclose known encumbrances to avoid future liability.

Note that in some cases, a buyer may accept certain encumbrances, such as utility easements, as part of the purchase. However, others, such as tax liens, must be cleared beforehand.

How Encumbrances Affect Title Status

When a property's title is burdened by encumbrances, it may be considered:

Clear or marketable if no unresolved issues exist
Clouded or unmarketable if there are liens, boundary disputes, or legal claims

Title companies identify encumbrances through title searches before issuing insurance policies. Most title policies exclude coverage for known or disclosed encumbrances unless explicitly resolved. If a title defect or unresolved encumbrance exists, the property may not qualify for financing or may require legal action to "quiet title."

Resolving or Clearing Encumbrances

The following are common methods for resolving or clearing encumbrances:

Payoff and release: Liens may be resolved by paying the underlying debt and recording a release of lien.
Negotiation: Work with covenant holders, neighbors, or utility companies to modify or terminate burdensome restrictions.
Quiet-title action: File a lawsuit to remove clouds on the title and obtain a court decree clarifying ownership.
Recording corrective documents: Correct surveys, boundary line agreements, and recorded easement terminations can tidy public records.
Title insurance claims: If coverage applies, use a title insurer to defend against or resolve covered defects.
Variances: Apply for variances or rezoning through the local planning or zoning board. Note that these are often subject to public hearings and approval requirements.

Commonly Asked Property Encumbrances and Legal Restrictions Questions

The following are frequently asked questions about property encumbrances and legal restrictions.

Can a property have multiple encumbrances at once?

Yes. A property may have a mortgage lien, utility easement, and HOA restrictions, all coexisting and legally enforceable.

Do encumbrances make a title defective?

Not all encumbrances make a title defective. Routine easements or known covenants may not prevent transfer but must be disclosed. However, unknown or disputed claims can cloud the title.

Can you sell a property with an encumbrance?

Yes, but many encumbrances, especially financial ones like liens, must be resolved at closing or agreed upon by the buyer and lender.

Are encumbrances recorded in public records?

Most encumbrances are recorded in public records. Title searches at the county recorder's office or assessor's office can reveal mortgages, easements, and covenants. However, encroachments may not appear in records and may require a survey to detect.

What is a "quiet title" action?

It is a legal lawsuit to remove an encumbrance or clarify ownership when there is a dispute or ambiguity, such as overlapping claims or unresolved liens.

Can title insurance protect against encumbrances?

Title insurance generally covers undisclosed or unknown encumbrances that were not found in the public record. It does not cover known restrictions that are part of the purchase agreement.

How can I check for encumbrances before buying a property?

Request a preliminary title report or commitment for title insurance, hire a real estate attorney, and order a boundary survey to reveal physical encroachments.

Do encumbrances always transfer with the property?

Most encumbrances run with the land and bind successors in title unless expressly limited or extinguished by agreement or legal action.

What happens if I buy a property with an undisclosed lien?

The lien may survive the sale, and a title insurer may cover losses if the policy applies. Otherwise, the buyer could be responsible for paying the debt or forcing the seller to remedy it via litigation.