In August, this blog discussed the question which every real estate purchaser needs to ask himself prior to the closing process, “Is title insurance necessary?” As that blog mentioned, title insurance is designed to insure the purchaser against certain defects in the title to the property.
Common title defects arise from a seller claiming to have marketable title (i.e. a title free from defects) or the failure to disclose an easement or other encumbrance on the property. It is important for potential purchasers of real estate to understand the nature and types of the various encumbrances that can drastically affect the use and value of a parcel of real estate.
An encumbrance is a claim against, limitation on or liability against a parcel of real estate, and can restrict the owner’s ability to transfer title to the property. Common encumbrances include liens, deed restrictions, easements, encroachments and licenses.
Property Liens
A property lien is a claim for money that is secured by real estate. The most common type of lien is the mechanic’s lien, which allows a contractor to place a lien on a parcel of real estate for construction that was performed on the property. Another common type of lien is a tax lien. Tax liens are placed on real estate by government entities when the owner fails to pay property taxes.
A potential purchaser of real estate must be wary of property liens because, in most circumstances, the lienholder can force a sale of the property and use the proceeds of that sale to satisfy the underlying debt.
Deed Restrictions
Sometimes referred to as covenants or conditions, deed restrictions are limitations on the manner in which a property can be used or the type of structures that can be built. Deed restrictions are common in real estate developments where the developer wants to encourage uniformity and maintain certain construction standards. By limiting the use of a parcel of real estate, stringent deed restrictions can reduce the property value by limiting the number of potential buyers.
Easements
An easement is a right to use the property of another without possessing it. The party to an easement that gains the benefit of the easement is considered dominant estate, while the party shouldering the burden is the servient estate.
For example, John and Bill live on adjacent parcels of land. John holds an easement to use a driveway Bill’s land that allows John access his property. In this instance, John’s property is the dominant estate and Bill’s is the servient estate.
There are two types of easements, easements in gross and appurtenant easements. An easement in gross is one that benefits an individual or entity. For example, an easement to a railroad company to build and maintain a rail line across a property. An appurtenant easements is one that benefits the dominant estate and “runs with the land.” This means that, generally, an appurtenant easement transfers automatically when the dominant estate is transferred.
Encroachments
An encroachment occurs when a permanent structure hangs from one property over the property line onto another landowner’s property. Often, encroachments are inadvertent, and discovered only when a survey of a parcel of real estate is performed. However, under some circumstances, a property owner may have the ability to force the other owner to remove an encroachment at the other owner’s cost. Depending on the nature of the encroaching structure, such removal could be quite expensive.
If you have questions regarding the various types of real estate encumbrances, the purchase of real estate, or need additional information about real estate transactions, contact the experienced real estate attorneys at The Slater Firm, Ltd. today.