Title reports often make mention of “liens, easements, and encumbrances” on the property, but the terms are rarely described or explained comprehensively. All three terms describe a restriction on a person’s ownership of land but with varying degrees and varying impacts.
Encumbrance
An encumbrance is “any right to or interest in land, subsisting in a third person, to the diminution of the value of the land, though consistent with the passing of fee by conveyance.” Ford v. White, 179 Or 490 (1946). Said otherwise, it means somebody other than the landowner owns some sort of interest in the land that cuts into the landowner’s absolute ownership of the land. Leases, easements, sold mineral rights, all of them are forms of encumbrance. When land is encumbered, the title is considered “unmarketable” [“unmarketable title” means there is a defect in the title that allows a buyer to potentially reject the transfer]. Sellers can still transfer and sell encumbered, “unmarketable title” land, but must ensure that the Buyer is completely aware of any and all encumbrances before the purchase is completed, and should not claim to convey land free from encumbrance unless they truly have land completely free from third party interests.
Most contracts for real estate are baked around the understanding that nearly all property is subject to some sort of encumbrance these days. Contracts for sale presume and assume that the Buyer is taking the property “subject to recorded easements,” hence the use of title reports to put the Buyer on notice that there are various public record restraints on the owner’s interest in the land. All the same — knowingly attempting to sell property with unrecorded encumbrances can create issues with the transaction because the hidden lack of marketable title will potentially give buyers a right to contest the validity of the transaction.
Lien
A lien is a “right given by contract, statute, or rule of law to have a debt or charge satisfied out of a particular property.” 3 Patton and Palomar on Land Titles 567 (3rd ed. 2003). It is a form of encumbrance that gives a creditor a legal right to force the sale of the property to pay off a debt that is secured with that specific property. Said otherwise, liens occur when a person collateralizes a debt with their property [liens can be applied to both real and personal property]. It is the legal equivalent of saying “If I don’t pay you back, I’ll sell my house and pay you back.” While some liens are voluntary as a part of negotiations [e.g. Mortgages], others can be created non-consensually through court judgments and statutory liens. Judgment liens are the court system’s way of ensuring the debtor’s payment of debts. When a person fails to pay as required by contract, law, or rule, the creditor can petition the court to apply certain liens to the debtor’s property, allowing the creditor to access those assets. I.e. The creditor can force the sale of the property to satisfy the lien.
In general, when a lien is paid off, it is considered “satisfied” and the creditor’s ability to force a sale ceases. Some other actions can also pause or limit the ability to force a sale, such as bankruptcy, laches, and waiver.
Easement
Easements are a form of nonpossessory encumbrance where a third party is granted a form of ownership over a parcel of land. It is a situation where the land owner has given away a shard of their right to exclusively use and enjoy their land. It is a wide-ranging concept that can be exclusive or nonexclusive, temporary or extensive, restrictive or permissive, all based on the easement agreement itself. Open, notorious, and visible easements will not render the title unmarketable, as it is understood and presumed that the Buyer knows about the easement when they make their offer. Ford v. White. For this reason, power lines, railroads, sidewalks — the obvious easements that are clearly visible — will rarely cause issues of marketability in a transaction, because any reasonable person viewing the property would see the overlaying usage [though for some reason, in places like Florida, it was found that an easement for a public street rendered title unmarketable, Meacham v. Burgiss, 1 F2d 47 (SD Fla. 1924); at this stage, it’s likely best to chalk that up as a Florida and full warranty deed issue]. Other easements can create title issues and are harder to track, such as transferring rights to collect rental profits, granting neighboring land access over the property, and restrictions on building in certain ways [e.g. Limitations on building upwards due to the neighbor’s rights to view the mountain]. In either case, the easement gives the holder a right to go to court and enforce the rights granted within the easement, either through declaratory or injunctive relief [declaratory relief is where the court either says “this is how the rights work” for informational purposes; injunctive relief is where the court says “this is what you are going to do”]. Money damages can sometimes be on the table as well if an easement is violated or not honored.