Q: What are liens and encumbrances? Are they different?
A: An encumbrance is a claim, liability, or other right that is attached to real property and may lessen its value. A lien is simply a type of encumbrance that can be satisfied with the payment of money.
A good example of a lien is a mortgage lien. As long as you have a mortgage, the mortgage lender has a lien against your property. If you don’t pay your mortgage on time, the lender can foreclose on your property. However, once you pay your lender all the money you owe under the mortgage, the mortgage is satisfied and no longer affects title to your real property. Another type of lien that may affect your property is a mechanic’s lien. If, for example, you own a home and hired a contractor to do work, but failed to pay for it, the contractor may put a mechanic’s lien on your property which, for practical purposes, will force you to pay for the work before you can sell or refinance your home.
There are other types of encumbrances that are not liens because they cannot be satisfied by paying money and generally stick with the property for a number of years, or even perpetually. The most common example of such an encumbrance is an easement. Utility companies generally will have perpetual easements along the front, side, or rear of your real property so they can install and maintain various utilities to service the neighborhood. Also, if you have leased your property, the lease constitutes an encumbrance that will last for the number of years stated in the lease.
Q: What are the most common types of liens and encumbrances affecting residential real estate?
A: All residential real estate is subject to a real estate tax, the most common type of lien. A mortgage is also a very common lien, since most homeowners buy their homes through mortgage financing. Utility easements are very common encumbrances. Finally, homes located within a planned development are usually subject to another common encumbrance, which is a declaration or other document that includes the restrictions, rules and regulations governing the use of the real estate.
Q: What should I know about liens and encumbrances before signing on the dotted line?
A: You should review and understand the specific liens and encumbrances which will affect title to your real property. This is especially true if your property is subject to a declaration or other rules and regulations of a homeowners’ association. You need to know, for example, if there are restrictions on how many pets you can have and how big the pets can be, or if you are allowed to put in a fence and what type of fence it can be, and whether or not you can paint your house a certain color or put a shed in the backyard. All of these matters are usually addressed in the declaration and affect the way you can use your home. It’s best to know what the issues are before buying a home.
Q: When I buy a home, how can I protect myself against liens and encumbrances that may my hurt my home’s value?
A: You should obtain title insurance. In Ohio, the seller usually pays for this. The title insurance commitment shows you what liens and encumbrances will affect title to the real property after closing, and lets you know if, for example, the property is subject to a mechanic’s lien that the seller should pay before closing.
Q: I recently put a chain link fence around my property, and my homeowners’ association said that this type of fence is not allowed and must be taken down. The declaration does say that I cannot install a chain link fence, but do I have to abide by this rule, and is there any way to change it?
A: Unless the rule is arbitrary, discriminatory or against public policy, you must abide by all of the declaration’s rules and regulations. If the rules do not specifically address declaration amendments, it may be possible to change the terms of a declaration, but only if a large percentage (at least 75 percent) of homeowners in the development approve the change. Because it is usually very difficult to get such approval, it is especially important for you to review the governing declarations before you buy the home.
This “Law You Can Use” consumer legal information column was provided by the Ohio State Bar Association. It was prepared by Columbus attorney Ryan P. Aiello of Dinsmore & Shohl LLP.