Encumbrances to Real Property Flashcards
So, what even is an encumbrance?
An encumbrance is a non-possessory interest in a property that burdens the title.
An easement is an…
Interest in, or a right to use, another individual’s land or property, generally for a specific, limited purpose. This is a “physical” encumbrance.
Do easements run with the land?
yes
A lien is
A claim made by a creditor against real or personal property pledged by a debtor as collateral. This is a “financial” encumbrance.
What is a deed restriction?
It is a private (non-governmental) land-use restriction written in the deed. Also known as protective/restrictive covenant. This is a “physical” encumbrance.
A lease is an encumbrance because…
The owner’s use of the property is significantly limited. If a home is being leased, then the owner can’t just go hang out in the home even though they own it. That makes sense, right? This is considered a “physical” encumbrance.
A cloud on the title is
Another form of encumbrance to tile. It just means that there are disputes on the title record that need to be cleared away.
How do you clear a cloud on the title?
Quiet title suit. aka a lawsuit against anyone who has a claim to the land. You might win, you might not.
Some common causes of clouds on a title include:
An owner who dies without a probated will
A divorce
Fraud
Liens
Foreclosure proceedings
A quitclaim deed is…
Essentially, it is a promise written in writing by anyone who might potentially be able to claim a property (like a distant heir and/or ex-spouse). It “quits” their right to claim the property.
What is fraud in a cloudy title context?
Two or more buyers are sold the same property, so the court handles it, and only one gets the property.
Different from encumbrance, a license (not to be confused with a real estate license) is the revocable and temporary permission to use
Someone else’s property for a specific purpose. A license does not run with the land or transfer with the deed or title, which makes a license different from an encumbrance.
A license to use property ends when what happens?
A license is temporary and can be withdrawn at any time. It usually ends if the property is sold or when one of the parties dies. An example of a license is a landowner allowing a specific person to hunt on their property.
License vs. Easement differences
The main difference between a license and an easement is that a license can be withdrawn at any time.
There are a few other key differences to know.
How they are created: Licenses can be established with nothing more than an oral agreement between the property owner and the license holder. An easement generally requires legal action or a written agreement.
Duration: Licenses are temporary, but easements continue to exist indefinitely.
Attachment: Licenses don’t have to run with the property, but easements always do.
Assignment: Unlike an easement, a license terminates if the license holder dies. The license holder can’t assign their license to someone else, either.
An encroachment is
Physical property that crosses the boundary into a neighboring landowner’s property.
There are a few different strategies homeowners can use to solve encroachments:
The person being encroached on can ask their encroaching neighbor to move the item in question.
The encroacher can purchase a tiny piece of the neighbor’s property, so they’re no longer encroaching.
The encroached-on neighbor can sue.
A survey is the
Process and physical product of finding and measuring the boundaries of a piece of real estate, including the location of improvements, encroachments, and easements.
What are some “encumbrance” documents that must be recorded publically (3)
liens, judgement liens, and mechanic liens
What is constructive notice?
if information is available to the public or recorded in official documents, the law assumes you should know about it, and you can’t claim ignorance as an excuse in legal matters.
What is actual notice?
Actual notice is the next level of notice; it means the buyer is actually aware of it. Because it’s impossible to miss. Like two utility poles tell you a construction company has an easement on the property.
Affirmative vs. negative easements?
Affirmative ALLOWS someone to use a property.
An example is a private gate on a public beach for houses on the beach. That gate is an affirmative easement.
Negative PREVENTS someone from doing something on their property that would otherwise be legal.
The most common example of a negative easement is when a property owner is prohibited from building a structure or planting a tree on their property because it would block a neighboring property’s view.
Ways easements are made: (3)
Grants, implications, and operation of law.
Easement by express grant…
Easement by express grant is when a property owner voluntarily gives someone else the legal right to use a specific part of their property for a certain purpose. It’s like giving permission through a formal agreement for someone to use your land in a particular way, such as allowing a neighbor to use your driveway to access their property.
An easement appurtenant is…
The easement appurtenant allows one neighbor to use part of the other neighbor’s property. This type of easement transfers with the land and cannot be discontinued by a new property owner.
The parcel of land that benefits from an easement appurtenant by having the right to cross another owner’s adjacent land is called the
Dominant tenement/estate
The other parcel that must allow such crossing is called the
Servient tenement/estate
An easement in gross is…
Applies to a person or entity, not the specific land.
a floating easement means…
There is no exact, definite location set in place.
An easement by necessity is…
It is a type of easement by implication that happens when the dominant tenement cannot be used without an easement. It’s sometimes referred to as an easement of necessity.
Landlocked means…
That means they don’t have a road to get in or out of the property unless they drive across someone else’s land. Since there is no other choice but to use someone else’s land, the people who need a way in and out will be granted an easement by necessity.
A conservation easement is…
An easement was created to preserve land from development. When a property owner creates a conservation easement, they lose some of the rights they have in that land. They may prohibit themselves (and future owners) from developing the land but still allow it to be used for recreation, for example. The tradeoff is that the land is preserved in its natural state.
Land that has been turned into a conservation easement can still be sold, but…
The easement will remain.
Conservation easements are often protected and enforced by a kind of nonprofit trust specifcally called…
Conservation land trust or conservation water trust. Their job is to make sure conservation easements are enforced.
Owners who create conservation easements can see other advantages…(2)
Property/estate tax breaks
Federal and state tax credits
An easement by prescription is…
Is granted after a person has used the property continuously and openly for a prescribed period of time without the owner’s permission.
In North Carolina, an easement by prescription can only happen after the non-owner of the property has used it for at least.
20 years
There is no easement by prescription if there is…
permission
Adverse possession, this is…
This is what can happen when a landowner does not use their land or inspect it for many years. That owner may lose the title to another person who has some claim to the land, takes possession, and uses the land. In North Carolina, the possession must be open, notorious, and hostile for at least 20 years.
Adverse possession doesn’t apply to land that is owned by the _____, but it can affect private property.
government
An easement for light and air is…
A negative appurtenant easement prevents the owner of adjoining land from doing anything that could block light and air from the dominant tenement. These are also sometimes called view easements.
An easement by condemnation is…
Where private property is taken for public use
Eminent domain, which is…
The government’s power to seize private property for public use. (The government must pay the property owner just compensation for the property.)
Maintenance costs related to the party wall will be shared between…
The two parties
In order to be granted the cartway, the landlocked landowner must prove that:
There is no public road.
The cartway is necessary
If a cartway is granted, the landlocked owner must pay…
The adjoining landowner for the fair market value of the easement - pretty similar to eminent domain.
An easement can be terminated if there is no need for it to exist any longer. This happens in a few different ways:
Abandonment
Release
Prescription (if the owner has failed to use the property for 20 years. relates to adverse possession)
Merger (separate properties merge and are owned by one person now)
Expiration of purpose
Court action (quiet title suit)
A borrower can’t sell their lien-laden home unless:
The borrower pays off the lien to clear it on or before closing day OR
The buyer is willing to buy a home that has a lien on it (less likely)
A home equity line of credit, or HELOC
Is a loan in which the creditor agrees to lend a maximum amount within an agreed period, where the collateral is the borrower’s equity in their house.
What is equity?
Equity is like a slice of ownership in the house. The more money you put in, the bigger your slice of ownership becomes. It’s kind of like a pizza – if you pay for half of it, you own half of it!
As time goes on, if the value of the house goes up or if you pay off some of the money you borrowed to buy the house (called a mortgage), your equity increases. This means your ownership slice of the house gets even bigger.
But remember, if the value of the house goes down or you owe more on your mortgage, your equity can decrease.
So, equity is like a way to measure how much of the house you really own and how much it’s worth.
The state of North Carolina doesn’t use your typical mortgage. They use
Deeds of trust. It’s essentially an agreement between a lender and a borrower to give the property to a neutral third party who will serve as a trustee. The trustee holds the home’s title until the loan is repaid.
Why does NC do deeds of trusts instead of regular mortgages?
No court case for the lender when you have a deed of trust
Involuntary lien
An involuntary lien is like a claim on your property that you didn’t agree to. It’s a legal action someone else takes to ensure they get paid what they’re owed. Imagine you borrowed money from a friend, and they want to make sure you pay them back. They might put a sticker on something you own, like your bike, to show they have a right to that item if you don’t repay the money.
Similarly, with property, if you owe someone money or haven’t fulfilled a legal obligation, they can go to court and get permission to put a claim on your property. This claim is the involuntary lien. It means they could take or sell your property to get the money you owe them. It’s a way for them to ensure they eventually get paid, even if you don’t willingly give them the money you owe.
General vs. specific lien
General = real and personal property
specific = real property
What is a judgment lien?
A judgment lien happens after a court decides someone owes money to someone else. It’s like a claim on the loser’s stuff, both their things and property, to get the owed money. If the person with the lien wants to buy something new, like a house, the bank might say no because the lien is more important than the bank’s claim. In North Carolina, a judgment lien lasts ten years after the court decision.
Confession of judgment is…
If a person owes money to someone and allows a judgment to be entered against them via a written statement (instead of legal proceedings), this is a voluntary act.
Writ of execution is a…
issued by a court to force the sale of the property to pay the loan
Writ of attachment is a…
The court seizes property until it reaches a judgment.
The homestead exemption doesn’t cover some debts. They include: (5)
Consensual liens like mortgages (The homestead exemption won’t stop a foreclosure, for example.)
A mechanic’s lien is a lien a worker can put on a homeowner for work done but not paid for
Tax liens
Liens for child support or spousal maintenance obligations
Liens imposed by a condominium or homeowners association
Statutory lien is…
A lien that is created by law or statute
State tax lien is…
For state taxes, like income tax, unpaid amounts can lead to a general state tax lien on a person’s property. This lien is active for ten years from the time it’s recorded.
Federal tax lien is…
This general, involuntary lien is held against all of the defaulting taxpayer’s property.
What is a lis pendens?
A “lis pendens” is like a note at the courthouse saying there’s a lawsuit going on about a specific property. This tells everyone, including interested folks, that there’s a possible claim on the property.
This note is helpful because lawsuits can take a long time from start to finish. It gives a heads-up.
For buyers, lis pendens is super important. It’s a way for someone who wants to buy a property to know a lawsuit is happening about that property. When the title company checks the property’s history, they see this note. Then the buyer can decide if they still want to buy. Usually, if there’s a lawsuit, the buyer changes their mind about buying.
The action to enforce a properly filed mechanic’s lien must be brought within _____ days after a worker last furnished labor or materials.
180
For bigger projects, when you want to make changes to a property that costs more than ____, you have to follow certain rules. You need to pick an approved lien agent, which is like a company that helps with property titles and claims. This agent needs to be told before someone files a mechanic’s lien.
This applies to most building projects, except if you’re making improvements to your own house (even if it’s expensive).
If you’re working on one of these bigger projects, the people doing the work need to tell the lien agent within _____ days of starting. If they don’t, their claim might not be as important. Smaller projects under $30,000 don’t need to follow these rules.
$30,000
15
Ad valorem taxes, also known as property taxes, are…
Property owners have to pay charges based on their property’s value. This value-based tax is named “ad valorem,” which means “according to value” in Latin.
Various government bodies like counties, cities, schools, and more collect these taxes. They help fund local services. When property owners don’t pay, the government may send notices and then place a tax lien on the property. In extreme cases, they could even take the property through foreclosure.
Difference between Property Tax Liens vs. IRS Tax Liens:
Property tax liens are specific to a particular property and are based on the property’s value. If you don’t pay these, the government can put a claim on your property.
On the other hand, IRS tax liens are about unpaid income taxes, and they affect any property you own, both real estate and other belongings. This kind of lien is more general.
What are special assessments?
The local government or property owners come up with ideas for the improvements. These changes are paid for through special assessments, which are like taxes on the properties that benefit from the improvements.
So, special assessments help pay for local improvements, and if you don’t pay, you might get a lien on your property.
Property owners can share the cost of improvements on a ___ or _____ basis, depending on the type of improvement.
equal
prorated
Lien Priority Order:
Liens are usually paid in the order they were recorded. However, taxes and special assessments are first, and mechanic’s liens can be based on the start date of work, not the filing date.
Subordination Agreements are…
Sometimes, lenders want their lien to be more important. They use subordination agreements to change lien priority. This helps when refinancing or getting new loans. The existing lien-holder agrees to lower their priority.
Two ways to terminate a lien:
- Transfer the lien with title to the new owner
- You can pay the lien off at closing with the money you make from selling the house
Make sure your clients know about all possible ____ and ____ on the property because usually they are not wanted.
encumbrances and easements
