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HOW TO DEAL WITH ENCUMBRANCES WHEN BUYING INVESTMENT PROPERTIES

Posted by Mike Jordan on April 30, 2020
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When dealing with real estate investments, sometimes red flags pop up along the way. They can be anything from structural defects, non-functioning appliances, or the property may not be up to code. It’s also critical for investors and buyers alike to know if the property has any encumbrances. Strategy Properties is here to share what real estate encumbrances every investor should be wary of.

WHAT IS AN ENCUMBRANCE?

By definition, this is a burden or impediment. In a real estate aspect, this would be a claim regarding the use of a certain piece of real estate, besides the owner’s use. Encumbrances are a hassle to deal with since they prevent the buyer or investor from having full ownership over the property, even after it has been purchased. 

TYPES OF REAL ESTATE ENCUMBRANCES

Liens

A lien is placed on the property whenever a debt is owed, and the property was used as collateral. In most cases, the property acts as a collateral whenever the homeowner fails to repay the debt in due time. There are a number of common lien types:

  • Mortgage liens – probably the most common lien encountered by a majority of homeowners, this results in defaulting in part or the entirety of mortgage payments.
  • Tax liens – any unpaid income taxes or property taxes will result in a lien over the property.
  • Judgement liens – if the homeowner fails to win over a lawsuit, a lien can also be placed on their home. Surprisingly enough, there are cases where the lien is still applied even if the lawsuit isn’t connected to the home.
  • Mechanical liens – a lien can be placed whenever a homeowner fails to pay the services of a contractor in full. That’s why it’s always important to keep receipts for any work done on the property to avoid this claim.

How Can A Lien Be Removed?

The most obvious way is for the seller or homeowner to pay off their debt in full. You can contest a lien on the property if you believe that it happened due to bad faith, coercion, or fraud. This can be done by filing a court order to lift it. If the lien is due to a junior mortgage (second or third mortgages), lien stripping can be done in order to make the debt unsecured. 

Encroachment

This happens when someone intrudes on another’s real estate property. Even something as simple as a tree branch extending over a property line would be considered as encroachment. This is the reason why it’s common practice to put up fences to mark property lines. The encroachment in question will always remain, until both parties resolve the issue.

How Can This Be Removed?

Encroachments are noted whenever a land surveyor examines the property, before the actual transfer of ownership. Their report reveals where the boundaries of each property are. A written permission to use the property can be drafted when both parties agree to leave the encroachment in place, without having the hassle to deal with it once you purchase the property.

Easements

This is somewhat similar to an encroachment. Easements give a non-owner of the property the  right, or permission to use it in some way. For example, an individual might have to drive through another’s property to access the main road. Another example is when a utility company has the right to access a property to run and repair power cables. It’s important for investors to know if an easement exist, because they can be attached indefinitely to the property.  

An easement could benefit you, if the property you are purchasing benefits from the easement. 

How To Remove An Easement

Easements may not be removable. They often run with the property. Easements will show up on a title report. Most likely, the homeowner or seller has some sort of record from the title company over any easements that may still be attached. Of course, you can request a new survey from a title company of your choice to confirm easements. The important thing is knowing the easements exist, and whether you can live with it. 

Deed Restriction

These are usually restrictions that are written into the deeds. They can place major limitations on what structures can be built on the property, or how the home is actually used. For example, a deed restriction could prohibit homeowners from having a garage, or a fence. This is the reason why property owners should know and follow building regulations.

How Can This Be Removed?

You will need a Release of Restrictions Deed. This allows you to obtain consent from any person with a right to enforce the deed restrictions. For instance, if the restriction applies to the city, or the neighbor, you will need their permission before you can remove the restriction. If, for some reason, the restrictions were deemed irrelevant or discriminatory, you may be able to obtain a judgement from the court to release the restrictions from the deed. 


Encumbered properties can lower the property’s value, limit how an investor or buyer can use it and may make it difficult to sell. Any uncovered encumbrances should be dealt with swiftly, before sealing the deal in the real estate transaction. This will save you a lot of time, effort and future surprises. Our team of professionals at Strategy Properties can help you avoid any roadblocks to the success of your real estate investments. To learn more about our services, contact us at (734) 224-5454 or you can send us an email at info@strategyproperties.com.

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