What is an Encumbrance?

An encumbrance is a term frequently used in context with real estate. It is most often used with regards to property transfers. When contracting to sell or convey property it is usually implied that that property is being delivered free of encumbrances. (Smiddy v. Grafton (1912) 163 Cal. 16, 18.) This means the property is free or will be freed by time of sale, of any issues with title or things on the land that would decrease its value or cause problems with ownership down the line. (Hagge v. Drew (1945) 27 Cal. 2d 368, 376.) As such, encumbrances can make the property unmarketable and can affect the title to the property or the physical condition of the property.

What are some encumbrances that affect a property’s title?

If an encumbrance impacts a property’s title it may hold implications for the future holder of title.  For example, a mortgage is a type of encumbrance that impacts a property’s title. (Cal. Civ. Code § 2923.) Encumbrances may be any taxes, assessments, or liens on the property. (Cal. Civ. Code § 1114.) The list of encumbrances offered by under the California statute is not exhaustive, so anything impacting a property’s value may be covered. (Evans v. Faught (1965) 231 Cal.App.2d 698, 706-707.) If these types of encumbrances are present, they may impact future payments an owner has to make on the property. If the encumbrance is a lien the new owner may have a claim against the prior owner for delivering encumbered property. This is because if the lien is defaulted on, creditors may come after the property for repayment. Similarly, a mortgage acts as a debt on the property and the new owner should be aware whether they are assuming liability for the mortgage or not.

1. Restrictive Covenants

Restrictions and conditions are encumbrances on title where the property is contained in a grant. (Hartman v. Rizzuto (1954) 123 Cal.App.2d 186, 189-190.) Restrictions or conditions usually limit the use of the estate and if they are violated causes the estate to return to the grantor or original owner. (Zlozower v. Lindenbaum (1929) 100 Cal.App. 766, 772-773.) These are usually permissible as long as the buyer has constructive notice, meaning reasonably knows or should have known about the restriction. (Alfaro v. Community Housing Improvement System & Planning Assn., Inc. (2009) 171 Cal.App.4th 1356, 1374.)

2. Reservations

A reservation exists when part of a tract of land is reserved and not conveyed to the new owner. (Lange v. Waters (1909) 156 Cal. 142, 145.) This includes reserving the right of way for canals and ditches to be built on the land. (Sutter Butte Canal Co. v. Richvale Land Co. (1919) 40 Cal.App. 451, 455.)

3. Easements

Easements are considered an encumbrance that impacts the physical condition of the property. One type of easement is an encroachment where buildings or features encroach on the property at issue. If the buyer purchased property under the presumption of good title, they could sue to recover a deposit if there are encroaching buildings. (Walters v. Mitchell (1907) 6 Cal.App. 410, 414.) Alternatively, if the contract for sale promised title free from easements the seller did not meet those conditions and the buyer can rescind their offer. (Leiter v. Handelsman (1954) 125 Cal.App.2d 243, 247.) This is because encroachment is considered to be a substantial encumbrance. In evaluating easements like this, courts usually consider whether the affected owner or buyer would experience substantial loss. (Mertens v. Berendsen (1931) 213 Cal. 111, 114-115.) The easement cannot be a permanent obvious physical burden on the property.  (Evans v. Faught (1965) 231 Cal.App.2d 698, 706.) Right of way easements constructed by the government may be an encumbrance and can entitle the buyer to recovery of payments made as a result of it not being disclosed if title was to be received free and clear. (Kelso v. Slosburg (1932) 120 Cal.App. 479, 484.) Right of way easements allow another person to move across private property. 

Why are Encumbrances Important in Real Estate Sales?

Properties are commonly conveyed by grant deeds. Under a grant deed there is an implied covenant against encumbrances. (Cal. Civ. Code § 1113.) This means the buyer is protected against encumbrances that were created or applicable to the prior owner. 

Property that is conveyed under a warranty deed offers even more protection against encumbrances. These deeds include warranties or assurances that the title to the land is good and if there are defects or issues the grantor or seller will respond to it. (Tropico Land & Improvement Co. v. Lambourn (1915) 170 Cal. 33, 38.) One of the covenants under a warranty deed is a covenant against encumbrances which covers all encumbrances that impact or limit the use of land and any that affect its title. (Fraser v. Bentel (1911) 161 Cal. 390, 393-394.) 

If a covenant against encumbrances is breached the buyer can collect damages if it is an encumbrance that can be settled by paying money. (Cal. Civ. Code § 3305.) Otherwise, the damages are the estimated reduction in property value caused by the encumbrance. (Evans, 231 Cal. App. at 706.)

What are some examples of encumbrances?

For example, Julie is buying a home from Shawn under a grant deed. Because of this there is an implied covenant that Shawn is giving Julie the property free of encumbrances at the time of sale. If Shawn had not finished paying off a mortgage attached to the property this would count as an encumbrance. If it remained on the property Julie would need to know about it and she would likely not be subject to paying it.

If the encumbrance on the property was a lien and Shawn had violated the implied covenant against encumbrances in giving the home to Julie, she could collect damages for the amount of the lien. 

If the encumbrance was physical like a neighbor’s shed encroaching or a right of way easement across the land, like a walking path, Julie may be able to collect the amount the property was depreciated by that encumbrance. 

Conclusion

Encumbrances impact the ability to transfer and sell property whether they affect the property physically or in title. The Underwood Law Firm has a team of experienced lawyers who can help resolve your property interest disputes at trial and help you pursue solutions like partition by sale. We are here to help.