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Most property owners are often unaware of the causes that sometimes impede the sale and transfer of their homes until they find out a little too late in the course of transaction, that there are so many legal issues which affect and slow down or even void the entire sale process. Though these are generally normal and common legal issues and can be remedied by several means, it can however, take months or years depending on how quickly these legal concerns are resolved if they reached to court.
In legal terms, it is called encumbrance. An encumbrance is something that impedes or slows down the movement. In real estate transaction, titles and ownerships are transferred or passed on to new owner/s. Therefore, an encumbrance is something which slows down the process and movement of such.
Some obvious examples of encumbrance, which is normally stipulated on the title, are as follows:
A. Monetary Encumbrance
This type of encumbrance is simple and does not create problems as long as the selling price is more than enough to cover the entire loan amount. Normally, monetary encumbrances are paid off out of the proceeds of the sale of the property involved.
1. Mortgage and Deed of Trusts
In general, mortgaged properties and properties assigned as collateral (deed of trust or assignment) are encumbered for the amount outstanding and cannot be transferred to another party within the prescribed mortgage period unless the loan is pre-terminated or fully paid even before the term expires.
2. Unpaid Taxes
Property Taxes and state income taxes if unpaid, government can file a Notice of Tax Lien against your property.
3. Pending Court Case (Lis Pendense)
If you are sued, and the other party obtains a money judgment against you, he/she may record a judgment lien against the title to your property. In a lawsuit, a lien may be placed against your real property by means of a writ of attachment, even before the judgment comes out. This document makes your property a security for an eventual judgment lien that will be placed on your property if you lose the lawsuit.
Generally speaking, property with lis pendens on it cannot be sold, unless the court agrees to lift the lis pendens – which it may do if the seller posts a bond sufficient to ensure eventual payment of any judgment.
B. Non-Monetary Encumbrances
While monetary encumbrances are easy to deal with, non-monetary ones are often far more troublesome since they may cause severe restrictions as to the use of the property, and may even require legal assistance to resolve the issue.
Here are some of the common examples of these encumbrances:
1. Right of Way or Easement
Under the law, a person may use part of another person's property as easement to
gain access to his own property. The former may purchase the "right of way" from the
latter or they may enter into an agreement allowed by the law. Such agreement is recorded and stipulated in the title by the local registry where both properties are located.
2. Encroachment
This occurs when someone build a structure which overlaps or crosses your property line.
3. Squatters
Squatters or trespassers if left unchallenged for a period of time (5 years or more) can gain ownership rights of your property and can encumber the property while the case is still in court awaiting judgment.
4. Reconstituted Title
Missing or burned title, after declared lost before the court can be reconstituted or reconstructed in accordance with the legal procedures and upon order of the local court in behalf of the claimant. Title with such encumbrance cannot be transferred within a prescribed period, let say, 2 to 5 years. This is to allow other parties who may have interest or claim to the property to contest the ownership of the property on record.
So, before you sell or buy any property, it would be to your best interest to meticulously check if the property is covered by any of the encumbrances mentioned here to avoid headaches and further unnecessary expenses.
