Chapter 3 Concepts

Question 1

An encumbrance is

Answer 1

anything that affects title to real estate. It is a right or interest held by a party who is not the fee owner of the property.

**An encumbrance may affect the value or obstruct the use of the property, but it does not necessarily prevent a transfer of title. Tax liens and deed restrictions, for example, are common encumbrances that do not prevent a transfer of title.

Question 2

A lien is a

Answer 2

non-possessory charge against property that provides security for a debt or an obligation of the property owner

**If the obligation is not repaid, the lienholder, or creditor, has the right to have it paid out of the debtor’s property, usually from the proceeds of a court sale.

Question 3

Note, however, that whereas all liens are _________, not all __________ are liens.

Answer 3

-encumbrances

-encumbrances

Question 4

A voluntary lien

Answer 4

is contractual or consensual and is created by the debtor’s action, as when someone takes out a mortgage loan to buy real estate.

Question 5

An involuntary lien is

Answer 5

created by law, such as a tax lien imposed by a municipality.

Question 6

What falls under specific liens

Answer 6

SPECIFIC LIENS

Voluntary
-Mortgage

Involuntary
-Real Property Taxes
-Assessments
-Mechanic’s Liens

Question 7

What falls under General Liens?

Answer 7

GENERAL LIENS

Involuntary
-Personal Property
-State
-Federal Taxes
-Judgements

Question 8

A Mortgage or deed of trust lien is

Answer 8

a voluntary specific lien on real estate given to a lender by a borrower as security for a real estate loan

**It becomes a lien on real property when the lender records the mortgage or deed of trust in the office of the register of deeds in the county where the property is located. Mortgage and deed of trust liens are the most common form of lien or encumbrance.

Question 9

A) If a property owner fails to pay the taxes levied by a city or county on the property, the unpaid tax becomes

B) When is the lien attached?

Answer 9

A) a specific, involuntary lien on that property.

B) The lien attaches to the property on the date the property is listed (January 1 of each year) and, as a superior lien, takes priority over all other liens.

Question 10

Real property is taxed on an ad valorem basis, which means

Answer 10

according to value

Question 11

In North Carolina, both ad valorem and special assessment tax liens are valid for _______ and have priority over other types of liens.

Answer 11

10 years

Question 12

A mechanic’s lien is

Answer 12

a specific, involuntary lien and is available to contractors, subcontractors, architects, equipment lessors, surveyors, laborers, and others. This type of lien is filed when the property owner has not paid for the work or when the general contractor has been paid but has not paid the subcontractors or suppliers.

**The purpose of the mechanic’s lien is to give security to those who perform labor or furnish material in the improvement of real property.

Question 13

To be entitled to a mechanic’s lien, the person who did the work must have had a ________ (express or implied) with the owner or the owner’s authorized representative.

Answer 13

contract

Question 14

General liens affect

Answer 14

all the property of a debtor, both real and personal, rather than a specific parcel of real property.

Examples include judgments, personal property tax liens, and state and federal tax liens.

Question 15

A judgment is

Answer 15

a decree issued by a court.

Question 16

When a judgment is properly docketed in a county (entered and indexed in a judgment book), that judgment becomes an _________, general lien on all of the current and future real estate and personal property owned by the judgment debtor in that county. In North Carolina, a judgment lien is good for __ _______ from the date of the judgment.

Answer 16

-involuntary

-10 years

Question 17

A personal property tax is assessed on certain types of personal property. If unpaid, this tax becomes a ——–, involuntary lien against all the property owned by the taxpayer. Like real property tax liens, personal property tax liens have priority over other types of liens.

Answer 17

-general

Question 18

Both unpaid state inheritance taxes and unpaid state income taxes give rise to ——–, ——– liens against all property owned by the individual taxpayer. In North Carolina, both types of liens last for – ——.

Answer 18

-general

-involuntary

-10 years

Question 19

Federal tax liens

An IRS tax lien results from a person’s failure to pay any portion of federal IRS taxes, such as income and withholding taxes. A federal tax lien is a ——-, ——– lien on all real and personal property held by the delinquent taxpayer. Its priority is based on the date of filing or recording; it —- —– supersede previously recorded liens.

Answer 19

-general

-involuntary

• does not

Question 20

Remember, liens attach to the ———, not to the property owner. Therefore, although a purchaser who buys real estate under a delinquent lien is not responsible for payment of the debt secured by the lien, the purchaser does face a possible loss of the property if the creditors take court action to enforce the payment of their liens.

Answer 20

-property

Question 21

Because property taxes and special assessments generally take priority over all other liens, they are called ———– ——–.

Answer 21

superior liens

Question 22

Superior Liens

Therefore, if the property is sold through a court-ordered sale to satisfy unpaid debts, outstanding real estate taxes, special assessments, and unpaid debts, will be paid from the proceeds first. The remainder of the proceeds will be used to pay other outstanding liens in the —- – – —- and time they were recorded.

Answer 22

order of the date

Question 23

What is a writ of attachment?

Answer 23

By ordering a lien on the debtor’s assets until the law suit is decided and a judgment is rendered, the unsecured real estate remains available to satisfy the judgment.

A creditor can request the court to issue a writ of attachment against the debtor’s unsecured property.

Question 24

What is an easement?

Answer 24

A nonpossessory right to use the land of another for a particular purpose is called an easement

Question 25

An easement that is annexed to the ownership of one parcel of land and used for the benefit of another parcel of land is an ——— ———-. For an ——— ———— to exist, two adjacent tracts of land must be owned by different parties.

Answer 25

easement appurtenant

Question 26

The tract over which the easement runs is known as the ——– ——– or estate; the tract that benefits from the easement is known as the ——— ——– or estate

Answer 26

-servient tenement

-dominant tenement

Question 27

An easement appurtenant is considered part of both the dominant and the servient lands, and if either tract is conveyed to another party, the easement passes with the —–. In legal terms, the easement runs with the land.

In North Carolina, an easement must be ——– to be enforceable against the purchaser of the servient estate.

Answer 27

-title

-recorded

Question 28

What is an easement in gross?

Answer 28

A personal interest in or right to use the land of another

An easement in gross benefits a person or an entity, not a parcel of property, so there is no dominant tenement or estate. Examples of commercial easements in gross are the easement rights a railroad has in its right-of-way, billboards easements, or utilities easements.

Question 29

3 ways an easement can be created:

Answer 29

1. The first method of creating an easement is by express grant. This occurs when the servient owner gives an easement either by spoken or written words to the dominant owner. Typically this easement is created by a written agreement between the parties that establishes the easement right. The creation of an easement always involves two separate parties, one of whom is the owner of the land (servient owner) over which the easement runs.
2. The second method of creating an easement is by implication. An easement that is not created by express statements between the parties; but as a result of surrounding circumstances that dictate that an easement must have been intended by the parties. These are sometimes referred to as implied easements. An easement by necessity (see later discussion) is an example of an easement by implication.
3. The third method of creating an easement is by operation of law. The phrase “by operation of law” is a legal term that indicates that a right or liability has been created for a party, irrespective of the intent of that party, because it is dictated by existing legal principles. An easement by prescription (see later discussion) is an example of an easement created by operation of law.

Question 30

What is easement by necessity?

Answer 30

or easement by implication of law, arises because all owners must have rights of ingress to and egress from their land—they cannot be landlocked. If a grantor has conveyed property that is completely surrounded by the grantor’s property (thus landlocking the grantee), an easement by necessity will be created.

Question 31

Easement by prescription

Answer 31

When a claimant has made use of another’s land for a certain period of time, as defined by state law, an easement by prescription is acquired.

This prescriptive period is 20 years in North Carolina. The claimant’s use must have been continuous, exclusive, and without the owner’s approval. Additionally, the use must have been visible, open, and notorious, so that the owner could have readily learned of it. A property owner can prevent an easement by prescription from being created by giving permission to the user.

Question 32

An easement may be terminated by:

Answer 32

1. When the purpose for which the easement was created no longer exists;
2. If the easement holder becomes the owner of the land where the easement is located (e.g., land owner B buys lot A—a situation called a merger);
3. By release of the right of easement to the owner of the servient tenement;
4. By abandonment of the easement (the intention of the parties is the determining factor); or
5. By non-use of a prescriptive easement.

Question 33

A license is

Answer 33

a personal, nontransferable privilege to enter the land of another for a specific purpose, such as a license for a friend to hunt on a farmer’s land during the winter. A license differs from an easement in that it can be terminated or revoked.

Question 34

What is an encroachment?

Answer 34

arises when an improvement or any portion of an improvement, such as a building, fence, or driveway, illegally extends beyond the land of its owner and covers some land of an adjoining owner, street, or alley.

Question 35

In North Carolina, a property tax lien will have priority over all previously recorded liens except a previously recorded —- —- —– lien.

Answer 35

-state income tax lien

Question 36

The Machinery Act regulates

Answer 36

standards for real property taxation, standards for property tax assessment, standards for property tax appraisal, and requirements for tax-exempt status.

Question 37

A mill is

Answer 37

¹⁄₁₀₀₀ of a dollar, or $0.001. The property tax rate may be expressed as a mill-per-dollar ratio—for instance, in dollars per hundred or in dollars per thousand. A property tax rate of 0.032, or 3.2%, could be expressed as 32 mills, or $3.20 per $100 of assessed value or $32 per $1,000 of assessed value. (To convert mills into a percent, divide the number of mills by 1,000; for example, 32 mills / 1000 = 0.032 or 3.2%.)

Question 38

A property owner’s tax bill is computed by applying the property tax rate to the ——– valuation of the property.

Answer 38

-assessed

Question 39

North Carolina property tax liens

As noted earlier, property taxes are liens that attach to real property as of the listing date. In other words, even though property taxes are not due until September 1 of any given year, the tax lien takes effect the previous ——-. Remember, this tax lien takes priority over all other liens.

Answer 39

January 1

Question 40

Special assessments are

Answer 40

special taxes levied on real estate for public improvements made to that real estate. Typically, an assessment is levied for an entire neighborhood or area that has sought improvements from the government.

Question 41

Special assessment liens are specific liens against the property assessed and ———- with the property. Special assessment liens do not take precedence over ——– property taxes, and they are inferior to all prior or subsequent liens for state, local, and federal taxes. However, they enjoy priority over other types of lien, such as mortgage liens. Unlike property tax, special assessments are not tax deductible.

Answer 41

-transfer

-ad valorem