Kap Real Estate Chapter 3: Encumbrances on Real Property

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

Liens fall into several categories, based on how they are created. Also liens may be further classified as specific or general.

What falls under specific liens

What falls under General Liens?

Answer 6

SPECIFIC LIENS

Voluntary
-Mortgage

Involuntary
-Real Property Taxes
-Assessments
-Mechanic’s Liens
——————————————-
GENERAL LIENS

Involuntary
-Personal Property
-State
-Federal Taxes
-Judgements

Question 7

A specific lien

Answer 7

secured by a specific parcel of property and affects only that particular property. Examples would be mortgage or deed of trust liens, real property taxes or special assessments liens, and mechanics’ liens.

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

Real property tax and special assessment liens

Answer 9

If a property owner fails to pay the taxes levied by a city or county on the property, the unpaid tax becomes a specific, involuntary lien on that property. 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. Real property is taxed on an ad valorem basis, which means according to value.

Question 10

In addition to the ad valorem real estate taxes, special assessment (improvement) taxes may be levied against specific _______ _______. The purpose of these taxes is to pay for an improvement that has benefited the taxed property, such as street paving or the installation of a sewer system.

Answer 10

real property

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

A person CLAIMING a mechanic’s lien must file the lien claim within ____ _____ after last furnishing the labor or materials; the lien takes effect from the date that person first furnished the labor or materials.

The ACTION to enforce a properly filed mechanic’s lien must be brought within —– —– after a worker last furnished labor or materials.

Answer 14

-120 days

-180 days

Question 15

A property owner who applies for a building permit for improvements totaling more than $30,000 must designate an approved —– —– for the project. This includes all private residential and commercial construction projects except improvement to owner-occupied single-family detached property (even if the project cost exceeds $30,000).

Any potential lien claimant must serve notice to the lien agent within 15 days of beginning work on the project or lose the lien priority afforded mechanics’ liens. Projects costing under $30,000 are —— from requirement for a lien agent designation.

Answer 15

-lien agent

-exempt

Question 16

General liens affect

Answer 16

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 17

A judgment is

Answer 17

a decree issued by a court.

Question 18

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 18

-involuntary

-10 years

Question 19

Personal property tax liens

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 19

-general

Question 20

State tax liens

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 20

-general

-involuntary

-10 years

Question 21

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 21

-general

-involuntary

• does not

Question 22

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 22

-property

Question 23

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

Answer 23

superior liens

Question 24

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 24

order of the date

Question 25

The first lien to be recorded is the first lien to be paid. (This is called a pure race system of determining lien priority.) One exception to this rule is the mechanic’s lien: the priority of a mechanic’s lien dates back to the date the —— began or —– —– —— ——- rather than to the date the lien was filed. Remember, real property tax and special assessments can move in front of or take priority over any of these recorded liens. Real property taxes are always the most superior lien.

Answer 25

-labor

-materials were first provided

Question 26

Deed restrictions (also referred to as covenants, conditions, and restrictions or CC&Rs) are

Answer 26

private agreements placed in the public record that affect the use of land. They are usually imposed by the original developer of real estate when property is sold and are included in the deed to the buyer.

Question 27

When any suit is filed that affects title to a specific parcel of real estate (such as a foreclosure suit), the person bringing the lawsuit may file a

Answer 27

Lis Pendens (Latin for “litigation pending”). Lis pendens is not a lien but rather a notice that there is an action or lawsuit pending that may adversely affect the title. The lis pendens acts more like an encumbrance against the title.

Question 28

What is a writ of attachment?

Answer 28

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

Question 29

Once a judgment is recorded, a —- – ——- will be issued directing the county sheriff to sell the property to satisfy the judgment.

Answer 29

-writ of execution

Question 30

What is an easement?

Answer 30

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

Question 31

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 easement appurtenant to exist, two adjacent tracts of land must be owned by different parties.

Answer 31

easement appurtenant

Question 32

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 32

-servient tenement

-dominant tenement

Question 33

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 33

-title

-recorded

Question 34

What is an easement in gross?

Answer 34

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 35

3 ways an easement can be created:

Answer 35

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 36

What is easement by necessity?

Answer 36

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 37

Easement by prescription

Answer 37

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 38

An easement may be terminated by:

Answer 38

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 39

A license is

Answer 39

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 40

What is an encroachment?

Answer 40

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 41

Encroachments of long standing (for the prescriptive period of 20 years in North Carolina) may give rise to easements by ———-. The primary reason for a property survey is to ensure no encroachments have occurred. The legal effect of an encroachment is to potentially make both titles unmarketable.

Answer 41

-prescription

Question 42

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

Answer 42

-state income tax lien

Question 43

Real estate property taxes fall into two categories: (1) —— real estate, or ad valorem, property taxes and (2) ———- , or improvement, property taxes.

Answer 43

-general

-special assessment

Question 44

General real estate property/ad valorem taxes are

Answer 44

levied for the general support of the government agency authorized to impose the levy.

Property taxes are known as ad valorem taxes because the amount of the tax varies in accordance with the value of the property being taxed.

Question 45

The Machinery Act regulates

Answer 45

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

Question 46

What is assessment?

Answer 46

Real estate is valued for property tax purposes by county or township assessors or appraisers. This official valuation process is called assessment.

Question 47

The North Carolina Machinery Act mandates that assessed value is -_____% of market value (or true market value, as it is sometimes termed). State laws may provide for property to be periodically reassessed.

Answer 47

-100

Question 48

A mill is

Answer 48

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 49

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

Answer 49

-assessed

Question 50

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 50

January 1

Question 51

Special assessments are

Answer 51

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 52

A North Carolina property owner may appeal the amount of the special assessment but has only ——- after confirmation of the assessment roll to file a notice of appeal to the appropriate court, and within ——– after confirmation of the roll, the owner must deliver a statement on which the appeal is based. The appeal is then tried in court.

Answer 52

-10 days

-20 days

Question 53

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 53

-transfer

-ad valorem