Encumbrances And Nonpossessory Interests In Real Property

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Encumbrances And Nonpossessory Interests In Real Property

Property does not always relate to a tangible object. Instead, it depicts the legal connection between a person and an object. The legal idea of property gives and protects a person’s exclusive right to own, use, and dispose of an object.

But there are a few things you should know before you begin adding properties to your portfolio, whether that’s for investment or other objectives. Nonpossessory interests and encumbrances are two fundamental property-related concepts that are reviewed in this article.

Key Takeaways

  • The right to use or limit the use of another person’s real property or land is known as a nonpossessory interest, and it may exist due to a court order.
  • Real estate or other interests are examples of nonpossessory interests (any right, claim, or privilege an individual has toward land or real property).
  • Anything that might lower a property’s value or limit its use and enjoyment is considered an encumbrance, including liens and restrictive covenants.
  • Leases and restraining covenants are examples of encumbrances.
  • To safeguard your interests, carry out a title check, speak with a specialist, and think about signing a general warranty deed.

What Are Nonpossessory Interests?

The right to utilize or limit the use of another person’s real property or land is known as a nonpossessory interest. In other circumstances, such as in the case of a leasing agreement, the nonpossessory interest results from a consensual contract formed between two parties.

In other cases, a court order, such as a lien on the property, causes the nonpossessory interest to exist. For instance, a delinquent taxpayer’s real estate may be subject to a federal tax lien that is filed with the court in the county where the property is situated.

The holder of a nonpossessory interest does not own the property, but they do have certain and well-defined rights over how to utilize it.

Types of Nonpossessory Interests

Real Property

Lands, tenements, and hereditaments make up real property. The term “land” refers to the surface of the earth, the space under it, the air above it, and all that is built there. Lands and other ancillary rights to lands are included in tenements. Hereditaments, on the other hand, include all inheritable physical and intangible real estate interests, such as lands and tenements.

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Interest

Any privilege, claim, or right that a person possesses in relation to real estate is referred to as an interest. Different kinds of real estate interests are recognized under the law. The right of one person to use or limit the use of another person’s property is known as a nonpossessory interest in land.

Nonpossessory interests do not equate to actual land ownership. Instead, those who have a nonpossessory interest in real property are not the owners of that property and continue to have access to all of its rights, subject to encumbrances.

What Is an Encumbrance?

Anything that might lower a property’s value or limit its use and enjoyment is considered an encumbrance, including liens and restrictive covenants. Anyone participating in a real estate transaction should be aware of any encumbrances on the property that is being transferred since they might negatively affect the value or usage of land.

Typically, a lawyer conducts a title search and develops a title opinion, in which any encumbrances identified during the search are detailed. In a real estate sale, an encumbrance does not prohibit the title from transferring. The title is instead transferred subject to any encumbrances. In other words, even after the title is transferred to a new owner, an encumbrance continues to exist on the property or runs with the land until it is fulfilled.

Types of Encumbrances

Easements

An easement is a restricted, non-possessive right to utilize someone else’s property; it does not provide complete ownership. A nonpossessory interest in the other person’s property exists for the person or organization that benefits from the easement. This indicates that the easement burdens the property’s owner.

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Rights of way, drainage ditches, public utility lines, and easements by condemnation, sometimes known as eminent domain, are examples of common easements.

Encroachments

An improvement that crosses a property owner’s border line and encroaches on a neighboring property is considered an incursion. Encroachments include things like sheds, fences, driveways, and pathways, as well as building or overhanging eaves.

The title to both concerned properties may become unmarketable due to encroachments. This is due to the fact that although the encroached-upon property has access to all of the land, the encroaching property does not own all of the ground upon which improvements have been done.

Leases

A lease is an agreement between a landlord (lessor) and a renter (person or organization) (lessee).In return for rent or other valued payment, the lessor agrees to let the lessee to occupy and use the property under the terms of a lease.

The length of the lease, any conditions for an extension, the amount and frequency of rent payments, and other important details are usually laid out in the lease. The lessor still owns the property and has the title, even if the lessee is the one who occupies it.

Liens

A lien is a legal privilege that allows creditors to have their unpaid obligations settled via the sale of the debtor’s property. The asset serves as collateral, and in the case that it is sold, the money may be used to settle the obligation and remove the lien.

Real estate tax and assessment liens, mechanics’ or construction liens, judgment liens, and federal tax liens are examples of common liens.

Lis Pendens

A lis pendens is a notice of pending litigation that alerts all interested parties to the initiation of a legal proceeding that might have an impact on the ownership of a specific piece of property. A lis pendens, which may be filed in a state or federal court, usually relates to the ownership of real estate or the title to such real estate.

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Any individual to whom the property is transferred will be obligated by the judgment of the ongoing action since a lis pendens is filed against real property.

Protective or Restrictive Covenants

A protective or restrictive covenant, which manifests as a provision in a deed and restricts the use of real property, is an enforceable condition. These covenants impose obligations on landowners to carry out or refrain from doing certain actions.

Protective or restrictive covenants can specify requirements for minimum building square footage, architectural style, setback and sideline from roads or neighboring properties, and exterior home color, as examples.

The Bottom Line

It is important to perform a title search whenever you consider purchasing real estate. Doing so helps you determine if there are any title defects that could affect the use of the property. A qualified attorney can perform a title search to uncover any liens or encumbrances against the property.

Many properties are sold subject to all liens and encumbrances, which means that the property may be burdened. It is, therefore, in the buyer’s best interest to discover any encumbrances prior to making any final decisions.

A general warranty deed is the buyer’s best protection and contains a covenant against encumbrances warranty that assures the buyer that no encumbrances exist on the land except those that are specified in the deed.

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