If you’re in the market for a new home, it is vital to be aware of the potential consequences of inevitable mistakes that could create an encumbrance on your title. A title encumbrance is any claim, lien, or other legal interest that affects the title to a property.
An experienced title agency in New Jersey will tell you that when you buy a home, the title to the property is registered with the county where the home resides. This title includes a list of all the people who have an ownership interest in the property. There are several different types of title encumbrances, and they can prevent you from selling or refinancing your home which is why it’s imperative that you partner with a title search company when you’re in the process of buying or selling a home.
The Different Types of Title Encumbrances
The most common type of title encumbrance is a mortgage. A mortgage is a loan secured by the property that is being purchased. If you fail to make your mortgage payments, the lender can foreclose on the property and take possession of it.
One of the most common ways to end up with an encumbrance on your title is failing to record a deed or other legal document with the county recorder’s office. This can happen, for example, when you mistakenly believe that a property is already titled in your name.
Other ways to create an encumbrance on your title include using the wrong legal form to transfer or mortgage your property or mistakenly recording a legal document with the wrong county recorder’s office.
One of the leading reasons you should collaborate with a title insurance agency is because their team can provide you with a more detailed examples of the common encumbrances that you may come across. Here are some examples:
1. Tax Liens
Encumbrances are a problem that can prevent you from selling or refinancing your home. A common type of title encumbrance is a tax lien. A tax lien is a legal claim the government has on your property to collect taxes you owe. Other common title encumbrances include judgments, mortgages, and liens.
If you have a tax lien on your property, it will appear on a title search. This means potential buyers or lenders will see the lien and may be unwilling to purchase or lend money to you until the encumbrance is removed.
2. Construction Liens
If you’re trying to sell your home and there’s a mechanic’s lien, it becomes an encumbrance. The mechanic’s lien is most commonly placed by a contractor or supplier looking to get paid for materials used in home construction or remodel on the home or property in question.
3. Judgment Liens
Most people think that if they have a clear title to their home, they can sell it or refinance it at any time. Unfortunately, that’s not always the case. Even if you have a clear title, title encumbrances such as judgment liens can prevent you from selling or refinancing your home.
A judgment lien is a legal claim against your property created when you owe money to a creditor. For example, if a creditor sues you and wins a judgment against you, the creditor can get a judgment lien against your home.
A judgment lien can prevent you from selling or refinancing your home.
How to Clear a Title Encumbrance
If you’re trying to sell or refinance your home, and you’ve discovered that there’s a title encumbrance on the property, don’t worry! There are ways to clear it up and get the process moving again.
The first step is to find out what the encumbrance is. It could be a lien or some other legal claim on the property. Once you know what it is, you can start the process of clearing it.
If the encumbrance is from a past owner, you can work out a deal with them to remove it. If that’s not possible, you can go to court to have the claim resolved.
If you want to sell or refinance your home, you need to ensure there are no title encumbrances on the property.
Title encumbrances are serious restrictions on the use or ownership of a property. If you have any title encumbrances on your property, you will not be able to sell or refinance it. This is because the lender will not be able to transfer the title to the new owner or get a new mortgage in your name, and the encumbrance is removed.
Obviously, the best way to avoid an encumbrance is to check the title of your property before you try to sell or refinance it. That’s where we come in. At Cortes & Hay, we have been a full-service title agency for 50+ years. Our commitment to quality and service will help you navigate the title search process to ensure your title is free and clear for a “no surprise” closing on your new home.
Get in touch with us today to learn how we can help you with your next purchase.