Property Encumbrances and Restrictions

• Restrictions limit the bundle of rights associated with a property.
• Encumbrances are temporary restrictions on a property that can be removed upon meeting specific conditions.

Types of Encumbrances

• Mortgages
• Easements
• Property taxes
• Liens

Liens

• A lien is a claim against a property to secure a debt.
• Lien priority is determined by the order in which liens are recorded; generally, the first lien recorded is the first to be paid off.
• Government liens and taxes take precedence and survive foreclosures.
• Escrow accounts often manage tax payments.
• Junior liens are typically wiped out in a foreclosure because the senior lien uses the property as collateral.
• Second or junior lien holders must still pay off the debt because the collateral for the loan has been foreclosed

Taxes

• Property taxes cannot be wiped out.
• Delinquent property taxes transfer to the new owner upon foreclosure purchase.
• Lenders usually continue paying taxes if the borrower defaults to prevent the county assessor from selling the property for outstanding taxes.
• In the event of unpaid income taxes, the IRS can place a federal tax lien on the property, and after a trustee sale, the IRS has a 6-month Right of Redemption.

Types of Liens

• Specific liens apply to a specific property.
• General liens can be applied to any or all of the debtor's properties to satisfy the debt.
• A judgment lien is a court ruling that allows a creditor to take possession of the debtor's property.

CC&Rs

• CC&Rs (Covenants, Conditions, and Restrictions) are deed restrictions that maintain property values by ensuring a consistent look within a development.
• CC&Rs are typically enforced by HOAs in subdivisions, PUDs, and condominium/townhome complexes.
• Different phases within a development may have different CC&Rs.

HOA

• HOAs enforce CC&Rs through monthly fees, fines, and, in severe cases, super liens.
• Common HOA restrictions relate to:
  • Landscape height
  • Restrictions on public or commercial use
  • RVs, boats, old cars, materials, and colors
  • Pets
  • Parking

Super Liens

• A super lien takes first priority, allowing foreclosure for default, which can be problematic for lenders.

Hypothecation

• Hypothecation involves pledging property as collateral for a debt without giving up possession of it.