What is encumbrance?

An encumbrance refers to a assertion imposed on a property by a party other than the owner, potentially restricting the unrestricted use or transfer of the property until the encumbrance is removed. Various types of encumbrances include mortgages, property tax liens, leases, encroachments, and easements.

Types of encumbrance

Mortgage encumbrance

This is a contract between a borrower (mostly homebuyer) and money lender. Under this, the property will be set as collateral against the money borrowed. In case a borrower defaults on the loan repayment, the collateral may be seized by evicting people staying there.

Liens

This is a type of security interest in which the property’s title is affected. Under this, the creditor or the person who lends loan is allowed to seize the property as collateral when the borrowed money is not paid. Once seized, the lender can sell the property to get his money back.

Also Read: How to save tax on rental income?

Easement

Under this, one party is given the right to develop or restrict the use of a part of land that belongs to someone else. For instance, a utility provider, such as MGL piped gas line may be allowed to use their line through a property owned by someone else.

Encroachment

Under this, a person, who doesn’t own land, takes control of the property, and uses it as his own. This is done by constructing a boundary wall around the property. The encroached land cannot be freely used. Note, the person who has illegal construction on a land doesn’t own it. In this type of encumbrance, there is an effect on both parties. The land or property encroached cannot be used freely by the landlord or the person who has encroached it as he doesn’t own the land or property.

Also Read: What is a leave and licence agreement?