Lien vs. Encumbrance: An Overview

A lien represents a legal right to take possession of someone else's property until a debt is repaid or an obligation is met. It's a means of securing payment—the settlement of an obligation from the property owner. By contrast, an 澳洲幸运5官方开奖结果体彩网:encumbrance is a much broader term that refers to any type of claim against a🥂 property. A lien is one kind of encumbrance, but not all encumbrances are liens.

Liens

A lien is a legal right granted by the owner of a property, by law, or otherwise acquired by a creditor. A lien serves to guarantee an underlying obligation, such as the repayment of a loan. If the underlying obligation is not satisfied, theꩵ creditor may be able to seize the asset that is the subject of the lien.

Liens always represent a financial interest. A lien often results from secured loans such as auto loans and mortgages. It effectively gives the creditor theꦏ right to seize and sell the property that the creditor has a lien against to satisfy the outstanding debt.

A common example: If a person fails to make the payments on a car loan, it can lead to the financing company repossessing and selling the car to obtain payment. Another type of common lien is a judgment lien resulting from a 澳洲幸运5官方开奖结果体彩网:lawsuit initiated by a creditor. Upon winning the suit, a creditor can have a lien placed on the debtor's property in order to facilitate repayment of the debt. Liens may even include the right to 澳洲幸运5官方开奖结果体彩网:attach funds in the debtor's bank account.

Liens attached by tax agencies are specifically referred to as 澳洲幸运5官方开奖结果体彩网:tax liens. A federal tax lien is notable in that it takes precedence over any other claims by creditors, in most cases.

Encumbrances

An encumbrance is a claim against a property by a party that is not the owner. It can affect the transferability of the property and restrict its free use. Most, but not all encumbrances relate to real estate. Here🐻 are a few co🍌mmon types.

Easement

A easement is a real estate concept that defines one party's rights of use or improvement of someone else's property. An affirmative easement allows the easement holder to use the property according to the easement's terms. An example: a public utility company may have the right to erect telephone poles or run pipes either above or beneath private property. A negative easement lets the easement holder prevent certain actions. For example, a neighbor may have the right to stop their next door property owner from mowing their lawn at certain times or on certain days of the week.

Encroachment

An encroachment is an encumbrance that involves a party who is not the property owner intruding on or interfering with the property—for example, by building a wall that crosses the lot line. Until the issue is resolved, the property with the encroachment is encumbered, or can't be freely used.

Lease

When someone rents a property for a specified time period and rate, it's a type of encumbrance for the landlord, who retains title to the property but is constrained from using it by the lease agreement.

Special Considerations

Liens and encumbrances are most commonly associated with 澳洲幸运5官方开奖结果体彩网:real estate, but either one may be applied to 澳洲幸运5官方开奖结果体彩网:personal property as well. If an individual fails to pay a debt, a creditor or tax agency may attach a lien or an encumbrance to the individual's property, such as a car or boat. Having such a claim against the property 澳洲幸运5官方开奖结果体彩网:creates an unclear title and can limitꦯ the ability to sell or otherwise transfer the proper🌠ty.

Any existing encumbrance is required to be disclosed by the owner of the property to potential buyers. A buyer will inherit the encumbrance upon purchasing the property. A seller who does not disclose existing encumbrances is subject to legal ꦚaction by the buyer for their failure to do so.

The Bottom Line

Encumbrances encompass more claims on property than liens do. Some are financial, some are not. But a lien is tied to a debt obligation, which allows the lien holder to seize collateral property if the debt is not paid in a timely fashion. A common type of lien is a mortgage, under which a mortgagee who has agreed to pay off the debt on a home can be forced to forfeit the property if they cease making payments.