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Definition of Encumbrance

An encumbrance typically refers to a claim, charge, or liability that is attached to real property or other assets. It can restrict the transfer of ownership or limit the use of the property until the obligation is satisfied or released. Encumbrances can take various forms, including mortgages, liens for unpaid taxes, easements, deed restrictions, or any other legal claim against the property. Essentially, they represent any legal or financial burden on a property that affects its value or transferability.

Encumbrances set out in a prelim include:

  • Right of way
  • general and special taxes;
  • assestments and bonds;
  • covenants, conditions and restrictions (CC&R’s)
  • easements;
  • liens and
  • real estae interests held by others.

In the context of land titles

An encumbrance refers to any legal claim or liability attached to a property that may affect its transfer or use. These encumbrances can include mortgages, liens, easements, restrictions, or any other legal interests in the property held by third parties.

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Financial encumbrances refer to restrictions or limitations on assets that arise due to financial obligations or liabilities. These encumbrances typically involve financial transactions and agreements that impact the ownership or use of assets. Common examples of financial encumbrances include:

  1. Mortgages: Mortgages are perhaps the most common form of financial encumbrance. When a property is mortgaged, the lender holds a security interest in the property until the mortgage is paid off. This means that the borrower cannot freely sell or transfer the property without satisfying the mortgage debt.
  2. Liens: Liens can also be considered financial encumbrances when they involve financial obligations. Liens can be placed on property for various reasons, such as unpaid taxes, unpaid debts, or judgments. Until the lien is satisfied, the property may be subject to restrictions on its transfer or use.
  3. Pledges: Pledges occur when an asset is used as collateral to secure a loan or other financial obligation. The pledged asset cannot be freely sold or transferred until the obligation is fulfilled or released.
  4. Leases: Leases can create financial encumbrances for property owners. When a property is leased, the owner typically retains ownership but grants the lessee the right to use the property for a specified period in exchange for rent. During the lease term, the owner’s ability to use or transfer the property may be restricted.
  5. Judgments: Judgments resulting from legal disputes can create financial encumbrances on assets. If a court awards a judgment against a person or entity, the judgment creditor may place a lien on the debtor’s assets, including real property, until the judgment is satisfied.
  6. Restrictive Covenants: In some cases, financial encumbrances may arise from restrictive covenants in financial agreements. These covenants may restrict the borrower’s ability to take certain actions, such as incurring additional debt or selling assets, until certain financial conditions are met.


Non-financial encumbrances refer to restrictions or limitations on property that do not involve financial obligations. These encumbrances typically arise from legal or regulatory agreements, easements, or other non-monetary constraints on the use or transfer of property. Common examples of non-financial encumbrances include

  1. Easements: An easement grants someone the right to use another person’s property for a specific purpose. For example, a utility company may have an easement to access power lines or pipelines on private land. Easements can restrict certain activities on the property or limit the owner’s ability to develop or alter the land.
  2. Deed Restrictions or Covenants: Deed restrictions, also known as restrictive covenants, are limitations on the use or development of property that are written into the deed by a previous owner or a homeowners’ association. These restrictions may dictate aspects such as architectural style, land use, or maintenance requirements.
  3. Zoning Regulations: Zoning regulations are imposed by local governments to control land use and development within specific areas. These regulations designate zones for residential, commercial, industrial, or other uses and may impose restrictions on building height, setbacks, lot coverage, and other factors.
  4. Historic Preservation Easements: Properties designated as historically significant may be subject to easements that restrict alterations or demolition to preserve their historical character. These easements are often held by government agencies or preservation organizations.
  5. Right of Way: A right of way grants someone the right to pass through or use a portion of another person’s property for transportation or access purposes. For example, a right of way may allow neighbors to access a shared driveway or pathway.
  6. Encroachments: Encroachments occur when a structure or improvement on one property extends onto another property without permission. Encroachments can create legal disputes and may require resolution before property transactions can proceed.

Understanding these common types of encumbrances is essential for property owners, buyers, and sellers to ensure they are aware of any restrictions or liabilities associated with a property.

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