For many people, buying a home is a large milestone in their life and an investment in their future. After searching for the right property, you have decided to set down roots and settle in your new community.
The importance of this purchase for you cannot be understated, and you need to be careful that your transaction will not be derailed by unforeseen or hidden challenges. One common issue that can put your transaction on hold is an encumbrance on the property.
What is an encumbrance?
Simply put, an encumbrance is a legal claim against the property which you are seeking to buy or sell. I can be caused in a number of ways, but the most common way that a property can become encumbered is if there is a lien against it. There are several types of ways this can occur, the most common being a mortgage, but other instances can be due to a tax lien or a mechanic’s lien.
One common situation is where the owner of the property had improvements done to it, such as landscaping or a large home improvement project, and then failed to pay all or part of the money owed to the contractor. The contractor can apply for a mechanic’s lien against the property for the unpaid money owed to them. This lien lasts for a year, and during that time they have the right to petition a court for a lien foreclosure of the property.
Why are encumbrances a big deal?
Property that is encumbered has the risk that someone else can force the sale of the property in order to be paid for the value of their lien. Whenever the property is sold or transferred, the lien stays with the property until it is either paid off or a foreclosure action is filed. Thus, if you bought your new home and it had a lien for unpaid taxes on it or an undeclared mortgage on it, then you bear the risk of losing your property.
In some cases, you might have the right to sue the previous homeowner for failing to disclose the encumbrance, however, you can always protect yourself from this situation by having an attorney investigate the property record for encumbrances before you close on it. An experienced real estate attorney will do their due diligence to ensure that the property is free and clear of all other interests and that the title can pass to you unclouded when the sale concludes.