Encumbrances, Contract Law
Published on Mar 16, 2016
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PRESENTATION OUTLINE
Nonpossessory right or interest in real property held by someone other than the property owner.
The interest can be financial or nonfinancial. A financial encumbrance only affects title, while a nonfinancial encumbrance also affects the use of the property.
Security interest in real property. The creditor who holds the lien is called a secured creditor. A lien may also be defined as "a charge imposed on real property as security for a specific debt".
Untitled Slide
Photo by JefferyTurner
Foreclosure:
If an owner doesn't pay off the debt owed to a secured creditor, the lien allows the creditor to force the property to be sold to satisfy the debt.
A lien doesn't prevent a property owner from selling the property, but a new owner would take title subject to the lien if it is not paid off at the time of sale.
Voluntary Vs. Involuntary Liens
Photo by rentalrealities
Voluntary Lien:
One the debtor voluntarily gives to the creditor. Examples: Mortgages and Deeds of Trust
Involuntary Lien:
Also called Statutory Lien, given to creditors without owner's consent, by operation of law. Examples: Property Tax Liens and Judgment Liens.
General vs. Specific Liens
Photo by LendingMemo
General Lien:
Attaches to all of debtor's property. Example: Judgment
Specific Lien:
Attaches only to particular piece of property. Example: Mortgage
Types of Liens
Photo by woodleywonderworks
Mortgage:
Specific, voluntary lien created by contract between the property owner (mortgagor) and the creditor (mortgagee).
Deed of Trust:
Also called Trust Deed.
Used for the same purpose as a mortgage.
Mechanics Lien:
Also called a Construction Lien.
Specific, involuntary lien recorded by a person who provides labor, materials, or professional services for the improvement of real property if that person is not paid by property owner with the agreed time. If still not paid the lien holder can foreclose the property much like a lender would foreclose a mortgage.
Untitled Slide
Judgment Lien:
When the losing party in a lawsuit is ordered to pay money to the winning party, a judgment lien may be filed against her.
Involuntary, general lien, and can be foreclosed much like trust deeds and mechanic's liens. The lien attaches to all property owned by the debtor in the county where the judgment was entered.
Attachment Lien:
Occasionally, someone who gets sued will sell off her property and skip town before a verdict is reached. To prevent this, the plaintiff can ask the court to issue a writ of attachment before the lawsuit. This directs the sheriff to seize enough of the defendant's property to satisfy the judgment, if one is entered against her.
An attachment lien is created before a court decision,
while a judgment lien is created after a decision.
Photo by DES Daughter
Lis Pendens
Alternative to writ of attachment. Not a lien but does serve constructive notice of pending lawsuit. Remains effective as long as court action is pending.
Photo by DES Daughter
Property Tax Lien:
When property taxes are levied, a lien attaches to the property until the taxes are paid.
Property tax liens are involuntary, specific liens.
Special Assessments:
Result from local improvements, such as road paving or sewer lines, which benefit some but not all property owners in the county.
The benefited properties are assessed for their fair share of the cost of the improvement.
Involuntary and specific lien.
IRS Liens:
Liens for unpaid federal income taxes are involuntary, general liens that attach to all of a debtor's property.
A Federal Tax Lien is a general lien that attaches to all of the taxpayer's property.
Photo by DES Daughter
Pop Quiz
Photo by Pulpolux !!!
Daniel injured himself while swimming in Petra's pool. If Daniel sued Petra and received a $2,500 judgment in his favor, the resulting lien would be a/an:
a) Voluntary lien
b) General lien
c) Specific lien
d) Equitable lien
B
A judgment lien is a general lien. It will attach to all property belonging to the judgment debtor within the county where the lawsuit occurred.
Photo by Ditters Doodles
Lien Priority:
When a property is sold - voluntarily or involuntarily - the sale proceeds are not allocated among all the lienholders in a pro rata fashion. Instead, the liens are paid according to their priority; the lien with the highest priority is paid first, then the lien with the second highest priority, and so on.
Homestead Law:
Offers a homeowner limited protection against foreclosure resulting from judgment liens. It does not offer protection against foreclosure on mortgages, deeds of trust, or mechanic's liens.
Pop Quiz
Photo by Pulpolux !!!
The principal difference between a mechanic's lien and a judgment lien is that:
a) mechanic's liens are created by statute
b) mechanic's liens may take priority earlier than the date they are recorded
c) only judgment liens are not effective until recorded
d) only judgment liens are involuntary liens
B
Mechanic's liens take priority according to the date work begins on a project, not the date they are recorded. Judgment liens, however, take priority according to the date when they are recorded.
Photo by Ditters Doodles
While financial encumbrances affect only title to property, nonfinancial encumbrances affect the physical use or condition of the property itself; thus, a property owner could find the use of his property limited by a right or interest held by someone else.
Easements
Photo by reallyboring
A right to use another person's land for a particular purpose. A nonpossessory interest in land (the easement holder can use the land for the specified purpose but has no title or right of possession). An easement is not an estate.
Easement Appurtenant
Photo by andyarthur
Burdens one parcel of land for the benefit of another parcel of land. Runs with the land, meaning that the benefit or burden of the easement will pass to subsequent purchasers. Easements don't need to be specifically mentioned in a deed for the easement right or burden to be transferred.
Servient Tenement:
Land burdened by the easement
Servient Tenant:
Owner of burdened land
Dominant Tenement:
Land benefiting from the easement. The dominant tenement doesn't have to abut (be next to) the servient tenement.
Dominant Tenant:
Owner of the benefited land
Ingress/Egress:
A common easement is one in which the dominant tenant has the right to drive over a defined strip of the servient tenant's land to reach her home. The right to drive onto land is the right of ingress; the right to drive off of the land is the right of egress.
Photo by Barry_Madden
Easement in Gross:
Benefits dominant tenant rather than a parcel of land. With easement in gross, there is no dominant tenement (land), only a servient tenement. Unlike appurtenant easements, easements in gross do not "run with the land" but instead teminate upon the death of the dominant tenant. Example: right to fish in lake on another person's land.
Photo by Barry_Madden
Pop Quiz
Photo by Pulpolux !!!
An easement in gross:
a) benefits a dominant tenement
b) burdens a servient tenement
c) burdens a dominant tenant
d) must be owned as part of an interest in land
B
An easement in gross burdens a servient tenement, for the benefit of a dominant tenant. There is no dominant tenement. In fact, an easement in gross may be held by a person who owns no real property.
Photo by G.OZCAN
Creating an Easement
Photo by mlibrarianus
Methods of creating an easement include express grant, express reservation, implication, and prescription.
Photo by USDAgov
Express Grant:
Created when a property owner grants someone else the right to use the property. Must be in writing.
Photo by Barry_Madden
Express Reservation:
A landowner who is conveying a portion of her property may reserve an easement in that parcel to benefit the land that is retained. The reservation of the easement must be made in writing.
Photo by Barry_Madden
Implication:
Sometimes called an Easement by Necessity.
Can be either an easement by implied grant or by implied reservation. It arises when a lot is subdivided into two or more lots and the grantor fails to grant or reserve an easement on one lot for the benefit of another.
Photo by Barry_Madden
Prescription:
Created through long-term use of land without the permission of the landowner.
Acquiring a prescriptive easement is similar to acquiring ownership by adverse possession.
All 5 requirements must be met:
Photo by bill barber
Open and Notorious
Use must be apparent to the landowner
Photo by bill barber
Hostile
Use must be without the landowner's permission
Photo by bill barber
Continuous
Use must must be reasonably continuous for five years
Photo by bill barber
Claim of Right
Use must must be under some claim of right
Photo by bill barber
Property Taxes
Property taxes assessed on the easement must be paid.
Photo by bill barber
Methods of terminating an easement are release, merger, failure of purpose, abandonment, and prescription.
Photo by sjrankin
Release
Holder of an easement (dominant tenant) may release his rights in the servient tenement. The release must be in writing, usually in the form of a quitclaim deed.
Photo by bill barber
Merger
If the dominant and servient tenements come to be owned by the same person, the easement is no longer necessary and therefore terminated.
Photo by bill barber
Failure of Purpose
If purpose of easement ceases to exist, the easement terminates.
Photo by bill barber
Abandonment
An easement is terminated if an easement holder abandons it. Mere non-use is not abandonment; an easement created by express grant or reservation can never be terminated for non-use... EXCEPT a servient tenant may bring suit to terminate by prescription after 5 years of non-use.
Photo by bill barber
Prescription
An easement may terminate by prescription if the servient tenant prevents the dominant tenant from using it for 5 years.
Photo by bill barber
Pop Quiz
Photo by Pulpolux !!!
A deed to an unlocated easement is:
a) void for lack of certainty
b) valid
c) voidable
d) unenforceable
B
A deed that does not specifically locate an easement is still valid. Often, an easement does not involve a specific portion of a property, only the easement holder's right to use the property for a particular purpose.
Photo by G.OZCAN
Licenses
Photo by waterlilysage
Like an easement, a license gives someone the right to use another person's land. However, easements and licenses are different in important ways. A license is (1) temporary, (2) revocable, (3) is not an interest in land, (4) does not encumber the land, (5) does not run with the land, and (6) can often be verbal.
An encroachment is a physical object that is wholly or partially on someone else's property.
Considered a trespass rather than an encumbrance.
Photo by srgpicker
Private Restrictions
Also known as deed restrictions, private restrictions are restrictions on the use of property imposed by some prior owner.
Pop Quiz
Photo by Pulpolux !!!
When Zach bought his property, he discovered that his neighbor's garage illegally extended several feet onto his property. If Zach wished to pursue legal action, he would be able to sue:
a) his broker, for failure to disclose
b) his title insurance company
c) his neighbor
d) the neighborhood association
C
He would be able to sue his neighbor in an ejectment action. If successful, the court would order his neighbor to remove the encroachment or pay damages.
Photo by G.OZCAN
"_______________"
Personal property that contains some interest in real property, the most common example being a lease.
Photo by thinbegin
"_______________"
A person who performs work for someone, but does so independently in a private trade, business, or profession, with little or no supervision from the person for whom the work is performed.
Photo by thinbegin
"_______________"
An encumbrance against real property that is used to secure a debt and that can, in most cases, be foreclosed.
Photo by thinbegin
Sample Exam #2
Selected Questions from your Salesperson's Cram
