02 Liens and Easements

Quitclaim Deed (Encumbrances to Title)

"quits" or terminates their rights or claim to the property (ex partner or spouse)

Liens Are...

...Encumbrances! A lien is a claim against property as security of a debt. Because liens are creditors' claims that impact title, they are all considered encumbrances. Some liens give the lender the right to foreclose on a property if the borrower goes into default. This right to liquidate property and recoup their money may be almost immediate or it may call for a lawsuit. Either way, liens have a significant effect on the title of property, which in turn affects the sale process you will have to navigate with your client.

Floating Easement

A floating easement just means that there is no exact, fixed location that the easement grants access to. So, instead of a clearly marked path, the dominant estate has access to cross the land wherever they need. If the servient estate was to build a clearly marked path, then the easement might stop being considered a floating easement.

General vs. Specific Lien

A general lien is a lien for which the real estate AND personal property may be sold to satisfy the debt. A specific lien is a lien that applies to a certain property only. Personal property is not affected.

Leases

A lease is an encumbrance because the party residing in the property does not own the title to the property. In other words, the owner's (or, the lessor's) use of the property is significantly limited. If a home is being leased, then the owner can't just go hang out in the home even though they own it. Makes sense, right?

Liens

A lien is a claim or charge against property, usually as security for a debt.

Priority of Liens

A lien on a specific parcel of property evidences an owner's debt and obligation to pay the debt. If a person fails to make payments or otherwise defaults on a loan, the property may be foreclosed on. At that point, the property will be sold at a public auction, and proceeds from the sale will be used to satisfy the owner's debt. This money is used to pay any outstanding liens, in order of their priority. Liens are commonly prioritized in the same order in which they were recorded. However, taxing entities take priority over any other kinds of liens in the public records. The IRS gets their money first, then real estate tax liens are settled. Just remember: tax liens take priority over non-tax liens. "First in time is first in line" is a good rule of thumb, but if the IRS needs to collect on an income tax lien, they get to cut in front of everyone else in line. Then, state and local taxes (such as special assessments) will be paid.

Lien Example

A parcel of property is foreclosed and sold by a court to satisfy all of the owner's outstanding debts. This debt includes a second mortgage lien recorded in June 2009. The first mortgage on the same property was recorded in May 2005. The property owner never paid a contractor for improvements performed in September 2015, for which a mechanic's lien took effect in October 2015. A special assessment was levied for curb improvement on the property in August 2017. The special assessment for the curb improvement, along with any outstanding general property taxes, is paid first. The first mortgage lien is then paid, because it was recorded earliest (2005). The lender for the second mortgage then receives payment (2009). Next, the contractor is paid to satisfy the mechanic's lien that took effect in 2015. Finally, if there are any proceeds left over from the sale, the property owner receives the remainder.

Licenses vs. Easements

A property owner could give someone permission to cross or use the property. This would be considered a license. The difference between a license and an easement is that the one whose land is being used by a non-owner can withdraw the license at any time. Creation - Licenses can be established with nothing more than an oral agreement between the property owner and the license holder. An easement generally requires legal action or a written agreement. Duration - Licenses are temporary, but easements continue to exist indefinitely. Attachment - Licenses don't have to run with the property, but easements always do. Assignment - Unlike an easement, a license terminates if the license holder dies. The license holder can't assign their license to someone else, either.

Vendee's Liens

A vendee's lien is a document declaring a claim from a buyer that the seller has not transferred title to the buyer according to the agreement. When a seller fails to deliver title to a parcel of real estate when all terms of the contract for a sale have been satisfied by the buyer, a vendee's lien applies to the property to ensure the repayment of what the buyer paid. It is a specific, involuntary lien that protects buyers. If the seller carries the full amount of the loan and the closing takes place at a title company, the buyer would receive the deed on that day. In that way, the seller's obligations under the contract are complete and a vendee's lien could not take place.

Vendor's Liens

A vendor's lien is a specific, involuntary lien on a property as security for the purchase price that arises when a seller has not yet received full payment for the property. When a seller does not finance a loan, the lender holds the vendor's lien. Vendor's liens are enforced by filing suit to have the property sold. The lender is normally the vendor, but there are times when the seller will carry a portion of the sales price as a note or provide a loan for the entire loan amount. If this should take place, then the vendor would be the seller. It is possible that the buyer will get a large loan from a mortgage company and a smaller loan from the seller. Example: Let's say that Lauren sells her property to Hillary, but Hillary does not pay Lauren the full price. In this case, Lauren can place a vendor's lien on the home and can maintain the lien and right to repossess the home until Hillary pays the full price to her.

Execution Liens (writ of execution, execution lien)

A writ of execution can be issued by a court to force payment of monies owed from a judgment when a debtor does not pay. It gives court officers the right to confiscate and sell the debtor's property to satisfy the debt. The writ of execution is itself an involuntary lien, called an execution lien. It attaches to the property until it is sold.

Actual Notice

Actual notice is that next level of notice; it means the buyer is actually aware of it.

Ad Valorem Taxes

Ad valorem taxes are general property taxes calculated according to the assessed value of real estate. The term ad valorem is Latin for "according to value." Many governmental bodies have the authority to levy and use ad valorem taxes, including the following: Counties Cities Towns Districts containing parks Hospital districts Water districts School districts Governmental bodies impose ad valorem taxes to support state and local agencies. Ad valorem taxes are specific, involuntary, statutory (created by law) liens. The way real estate property taxes work is that the county tax assessor will calculate the value of a property. This value is NOT necessarily the same as the market value of the property. Then each individual taxing authority will apply the tax rate that they decided upon to meet their financial needs in their budget. Usually, a consolidated bill will be sent to the property owner to pay. If there is more than one taxing entity (and there always is), the tax bill only has to be paid at one location.

Corporation Franchise Tax

All New York corporations have to pay yearly state taxes that are based on the company's net profit. A lien comes into the picture if the corporation doesn't pay the franchise tax when they're supposed to. This type of tax lien is involuntary and general. It's general because the corporation franchise tax attaches to the company's assets. The state can foreclose and dissolve the corporation if taxes don't get paid. Businesses must pay taxes on their profits, otherwise they can't legally do business in the state.

Affirmative and Negative Easements

An affirmative easement gives the holder the right to do something on another's property. (access a public beach through a gate on private property) A negative easement gives the holder the right to prevent someone from doing something on the person's land. (not being able to build a structure or planting a tree because it would block a neighboring property's view.

Easement by Grant

An easement by grant is an easement that is granted to someone in a deed or other document. An easement by express grant is created when a property owner sells a portion of their land but retains the right to cross it by formally stating that in the deed.

Easement by Operation of Law

An easement by implication is created when land is divided and there is a longstanding, apparent use that is reasonably necessary. It's created by operation of law (not express grant or reservation). Some people also call this an implied easement. Need to check for the existence of easements? Easements are recorded in public records in the county where the easement is located.

Terminating an Easement: Expiration of Purpose

An easement can also be terminated when there is an expiration of purpose that makes the easement pointless. If property that was once affected by an easement is removed or involuntarily destroyed (by a natural disaster or otherwise), the easement is terminated automatically. Any rebuilding of the destroyed property wouldn't necessarily mean the easement can exist again. There would have to be a new easement to cover the use of that rebuilt structure or property. Example: Josh no longer has power lines located on his property. The power company used to have an easement to access the area to maintain the lines, but the purpose has since expired. No reason for access, no easement.

Terminating an Easement: Abandonment

An easement can be abandoned due to non-usage. Example: Alec used to need to drive on a road cutting through Kristin's property in order to get to his house. He has since added a road that connects his own property to a public street, and no longer uses the road on Kristin's property. The two agree to terminate the easement.

Terminating an Easement: Court Action (quiet title action)

An easement can be canceled by court action if one of the parties wants it to be terminated. The process is called a quiet title action. There's no guarantee that the court will allow the termination, and going to court is only an option if the easement is not a necessity for the parties. Example: Alex bought a house, but doesn't like the fact that her neighbor has a pre-existing easement to cross her property. She goes to court to try to get it terminated.

Terminating an Easement: Prescription

An easement can be lost by prescription if the easement owner fails to use the property for 10 years. Just as an easement by prescription takes a long time to form, it takes a long time to terminate. Example: Andie used to have an easement to use her neighbor's fishing dock, but she hasn't used it for the past 10 years. The easement is terminated by prescription.

Terminating an Easement: Release

An easement can be released by the person who has the right to use the easement (the dominant tenant). Termination of an easement in this manner should always be recorded. This is achieved by all parties signing a document that says the easement-holder releases their interest in the property. ✍️ Example: Ben had an easement to cross his neighbor Sam's property. Ben decides to release this easement since he no longer needs it. Both Ben and Sam sign a written agreement releasing the easement. When Ben later sells his property to Tatiana, she can't cross Sam's property.

Easement by mutual agreement

Another way to create an easement is to simply agree on creating one. The two parties come to an agreement to create the easement, whether it is for convenience or necessity.

Bail Bond Liens

Bail bonds can be put up in the form of real estate in lieu of cash when a property owner is accused of a crime. This creates a bail bond lien: a specific, involuntary lien enforceable by a court officer or the sheriff if the accused property owner does not appear in court.

How Easements Are Created

By the deed By an agreement between the parties By the operation of law

Exempt Property

Certain kinds of property are exempt from attachments, meaning an attachment lien can't be put on them and they can't be seized while awaiting a judgment. Exemptions are often limited to a certain value. They vary from state to state, but might include items such as: Tools used for a trade or business 🔨 Social Security 🔒 Basic household appliances and furniture 🛁 School books 📚 Money owed to debtors for child support or injury 💰 Prescription health supports 💊 Basic wages 💵 Cemetery lots 🕯

Cloud on the Title

Consider a scenario in which a property owner dies. The home is inherited by a relative who wants to sell it. If the estate was not probated (the validity of the will was not established), the agent may have to assist the seller in locating others who may have a claim to the inheritance. Those other relatives and friends may have to sign off on the property, indicating that they don't expect anything from the estate before the sale can move forward. Once again, asking the right questions at the listing appointment will put the license holder on notice that a problem could arise.

Deed Restrictions (restrictive covenant)

Deed restrictions are limitations that control the land's use. A provision in a deed that limits the use of a property When going through the closing process, the agent could find the property easements by looking at the county records. Most commonly, deed restrictions are put into place by the land developer in order to fulfill aspects of the master plan. They must be disclosed to parcel buyers in the sales contract. Deed restrictions limit the way property may be used and developed. A deed restriction usually includes a time limit or renewal clause and must be written into the deed in order to be legally binding.

Equal or Prorated

Depending on the type of improvement, property owners can share the cost of improvements on an equal or prorated basis. For example, several homeowners might equally share the cost of a street lamp, but the cost of a new sidewalk might be prorated according to the length of sidewalk built on each individual property.

Tax Due Dates

Due dates for real estate taxes vary from state to state and are regulated by statute. Some states require payment the same year the tax is levied, and others require payment the following year. In some cases, payments can be made in installments, and only a portion of the tax bill is due during the year the tax is levied. A knowledge of local due dates, also called penalty dates, is especially important for the proration of taxes when a property is sold.

Appraisal

Each year, the assessor's office will send out statements to each property owner on the decision from the assessor's office on the value of the property. There is a protest period in which the owner could dispute the amount that the office came up with. Homeowners may object to the appraised assessment of their property to the county appraisal district, but they may need to take their appeals to court. It can be a point of pride for a homeowner to see the value of their home growing over the years since they purchased it. It means their land is desirable and they may make a nice profit if and when they sell the property. On the flip side, a higher assessed value means higher taxes. 😩 Since the annual taxes are going to be charged based on the assessed value of the property, it's in the owner's interest to get the appraisal district to lower the amount they came up with. If the property owner is successful in this endeavor to keep the assessed value lower, they will save money on taxes that year. This is a process that can be repeated every year to attempt to slow the growth of tax bills.

Easement Appurtenant vs. Easement in Gross

Easement appurtenant applies to the land regardless of the owner. Easement in gross applies to the person or entity, not the specific land. People are gross and land is permanent The difference between an easement in gross and an easement appurtenant is that easements in gross are granted to a person, not a property. It will expire on the death of the person (if granted to an individual), or when the property changes hands, unless renewed. An easement appurtenant is granted that allows Party A (dominant estate) to use the boat ramp of Party B (servient estate). When Party B sells their property to Party C, the easement still exists and Party A can still use the boat ramp of Party C. The easement belongs to the land, it doesn't matter who owns it. Conversely, if an easement in gross is granted for the same boat ramp scenario, then the easement would not transfer when Party B sold their property. If Party A still wants to use the boat ramp after Party C closes on the property, then they would have to negotiate a new easement.

Types of Encumbrances

Easements Liens Deed restrictions Clouds on titles

Ways to Terminate an Easement

Easements may be attached to title, but they don't have to be forever! An easement can be terminated if there is not a need for it to exist any longer. This happens in few different ways: Abandonment Release Prescription Merger Expiration of Purpose Court Action

Subordination Agreements

Even though the priority of non-tax liens tends to mirror the chronological order of when they were created, exceptions can be made to this rule. A subordination agreement is a contract that gives a mortgage recorded at a later date priority over a previously recorded mortgage. It's separate from the sales contract, and it's used when the lien holder is unwilling to accept a lower position in the priority of liens. This written agreement changes the priority of multiple liens on a property. When buyers obtain a mortgage loan to purchase a property, lenders often require a highest-priority lien. (Highest priority liens are said to be "in first position.") The bank will almost always want to be in the first position.

Common Improvements (Special assessments)

Gutters Street lights Curb improvements Street paving Sidewalks

Constructive Notice

If a party places their claim to a property in a public record (such as a deed, which you'll learn more about in the following level), it is considered that other parties have been served constructive notice. Constructive notice is the legal presumption that individuals will obtain information through due diligence.

Protesting an Appraisal

If a property owner does not agree with their assessed value, their first step is to meet with the assessor to discuss. Remember, the assessor does not give the property a market value, but rather a fair value of the property that contributes to the overall value of the municipality, thus allowing the municipality to fairly allocate property taxes. If a property owner wants to protest the assessed value, they would take their opinion and objections (and any evidence of why the number is wrong) to the assessor's office for the county. It is quite possible the owner will call the real estate agent who sold the property to the owner and ask for a market analysis to assist in proving to the assessor's office the true value of the property. Any pictures of the damage done by lack of maintenance may also help.

Consequences of Tax Liens

If a property owner fails to pay their income taxes or ad valorem (property) taxes, the taxing authority is likely to take action: First, the taxing authority will send delinquency notices. If the taxes still go unpaid, they will put a tax lien on the property. The last resort is to foreclose on the property.

Municipal Utility Liens

If a property owner refuses to pay bills for municipal utilities, the municipality can obtain a municipal utility lien on the property. It is a specific, involuntary lien.

Grievance board

If the property owner is unsuccessful in having their assessment adjusted, they may then take their case to the Grievance board, which holds an annual meeting for all property owners on one day each year, usually in the spring. The Grievance board is made up of a panel of property owners and perhaps elected officials in the town, who will listen to the individual protests and make a determination on each case.

Scenario

In 2010, Gene took out a mortgage and bought his dream home. In 2012, he took out a home improvement loan and installed a really awesome swimming pool (and became very popular in the neighborhood). In 2014, he put a third lien on their home to replace a broken heat and air system. Late in 2014, Gene lost his job as a corporate smell tester. He was out of money and defaulted on his loan payments. When the lender foreclosed in 2015, there was a $47,000 balance (including the cost of the foreclosure) to the first lender. There was still a $9,000 balance on the swimming pool loan and a $1,500 loan on the third lien for the heat and air system. Gene's property was sold on the courthouse steps for $52,500 cash. With that money, the first lien mortgage will be paid in full for $47,000. But after paying off the mortgage, there is only $5,500 left from the sale. The additional $5,500 will be paid to the pool loan (second lien) and since there is no more money, the third lien-holder will get nothing. Womp womp! It is easy to see that the lower the priority of lien, the bigger the risk. Because of that, you will find that the interest rate is often higher on the second and third liens to compensate for that risk.

General liens include:

Judgment liens (lis pendens) Estate and inheritance tax liens Deceased persons' debt Corporation franchise tax liens IRS tax liens

Statutory Lien

Law

Mortgage Payments

Lenders typically will require most borrowers to make a monthly payment that includes payment of the principal (loan balance amount) and interest (the cost of borrowing the money), plus an amount equal to 1/12th of their annual tax bill and 1/12th of the annual home insurance bill. The tax and insurance payments are deposited into an escrow account for the servicing agency of the loan to pay the annual taxes and insurance on behalf of the property owner. This system provides the lender with some assurance that these items are paid and minimizes the risk of foreclosure in the event of a tax default or loss from natural disasters or accidents. These monthly payments are referred to as PITI, which stands for Principal, Interest, Taxes, and Insurance

Real Estate Transfer Taxes

Many states and municipalities have passed laws that impose a tax on the conveyance of real estate from one party to another. New York is among them (as long as the consideration is at least $500). A real estate transfer tax must be paid when the property is sold, and the seller usually bears this expense. If the seller is exempt, the responsibility may fall on the buyer. The amount of transfer tax is set by the state. In New York, the transfer tax rate is $2 per $500 of the final sales price. There is also an additional $1 per $500 "mansion tax" that applies to properties sold for $1 million or more. The money collected from this tax may be divided between the county and state. Hey, at least it's cheaper than Michigan's rate. Their real estate transfer tax is $4.30 per $500 of the sales price of a single property! 💸 Real estate transfer taxes are usually paid by purchasing tax stamps, which are affixed to a deed at the time of recording at the county clerk's office. Some states also require that both buyers and sellers sign a declaration form, which indicates the type of transfer being affected, the address and legal description of the property, and the type of deed being used to transfer title.

Specific Liens

Mortgage liens Mechanic's liens Vendor's lien Vendee's lien Bail bond lien Municipal utility lien

Mortgage documents are two-party instruments...

Mortgagor: The person who takes a loan out from a bank (the borrower) Mortgagee: The organization or person who lends money (the lender) The "O"s and the "E"s: MOrtgagOr has two "O"'s, and so does bOrrOwer. MortgagEE has two "E"s, and so does lEndEr.

Effect of Liens on Sales

Real estate liens "attach" to a specific property. A borrower can't sell their lien-laden home unless: The borrower pays off the lien to clear it on or before closing day, OR The buyer is willing to buy a home that has a lien on it (less likely) A person can buy a property that has liens without being held responsible for paying off the associated debts. Still, the lien holder (lender) can take legal action to gain control of the property.

Ad Valorem Tax Liens vs. IRS Tax Liens

Recall that ad valorem taxes, which are based on a percentage of the property value, are levied through property taxes by the local authorities. Since these are based on the property alone, a tax lien for ad valorem taxes (i.e., property taxes) would be considered an example of a specific lien. However, an IRS tax lien is based on unpaid income taxes for the individual, not just a specific property. Therefore, an IRS tax lien would be considered a general lien. It affects any property an individual owns, including both real and personal property.

Adverse Possession

Similar to Easement by prescription. But the difference is that an easement by prescription grants use of the property, whereas adverse possession grants ownership.

Special Assessment Districts

Special assessments are taxes on properties that benefit from public improvement projects. If the local government improves an area through fixes like the installation of curbs or sidewalks, they cover the cost by charging special assessments. Special assessments can be voluntary or involuntary. A city can decide to improve the curbs in a neighborhood without the homeowners' consent. All affected homeowners must pay the special assessments or else have a tax lien placed on their property.

Pay or Defer

Special assessments become liens on affected homeowners' properties after the warrant and bills are issued. Special assessments may be prepaid in full to avoid interest charges, or taxpayers may pay the special assessments in installments. Some taxpayers may be eligible for special assessment deferral. Types of special assessment deferrals may be used by senior citizens and persons with disabilities who have hardship status, and for assessments levied on unimproved land.

Special Assessments Procedure

Special assessments may be imposed by implementing the following general procedure: 1) A local government body submits a proposal for an improvement, or affected property owners petition the city for an improvement. Both submissions must indicate the need for or desirability of the improvement. 2) The proper authority holds hearings on the improvement after the affected property owners have been notified of the proposal or petition. 3) An ordinance is passed that describes the improvement, the cost of the project, and the area affected. 4) The amount to be assessed is calculated against all assessable properties in an assessment roll. The assessment roll indicates how the cost will be divided, usually according to front footage or estimated individual benefit. 5) Public hearings are held to confirm the assessment roll. Community members can raise objections at this time; the proposal is then decided by a local court. 6) The special assessment becomes a lien on the affected owners' properties. 7) Local authorities issue a levy after the improvement is completed that allows a local collector to issue bills to begin collecting the special assessment.

Subordination Clause

Subordinate means to place in a lower order, class, or rank. So, in the context of real estate financing, when there are multiple encumbrances secured by the same property, a subordination agreement orders them in the sequence that the loans will be paid off. The subordination agreement is made available through the subordination clause.

Terminating an Easement: Merger

Termination of an easement can result from a merger in which multiple separate properties are merged together and owned by one person. Example: Gil had an easement to cross his neighbor's property and utilized it for years. His neighbor later decided to sell her property and move away. Gil bought the property and merged it with his own. Since he no longer needs an easement to cross his own property, the easement terminates.

Estate and Inheritance Taxes

The assets that a person leaves behind when they die are called an estate. An estate can include: Property Annuities Life insurance Estates and inheritance are subject to an estate tax. Taxes only apply to the amount of an inheritance that remains after certain expenses have been subtracted. These deductible expenses include: The deceased person's debt Funeral costs State death tax (which perfectly combines the only two guarantees in life, doesn't it?) Any charitable donations The remaining value of the estate is then taxed, creating an involuntary, general lien.

Real Estate Valuation

The value of an individual parcel of property is usually assessed for tax purposes by local assessors whose methods of appraisal may vary from state to state. The assessed value of a property is not necessarily the same as its market value or the price that the property owner paid for it. The value of the land upon which the property is situated is usually appraised separately. Assessed values are then listed in the local tax roll.

Tax Liens in general

There are several different kinds of tax liens. They are considered statutory liens because they are brought by a government entity. A tax lien is a lien that is imposed against property if the property owner becomes delinquent in the payment of taxes. It is important to note that real estate professionals are not expected to be (nor should they be) treated as tax experts. They should, however, be familiar with the tax issues on the following screens, and should direct a client to an accountant or tax advisor if they require specific tax information.

Examples of Encumbrances

There might be height restrictions on a property that wouldn't let a homeowner build a windmill on their property. There could be a dam on the property that needs to be kept up in a certain condition. The property might not include subsurface rights.

Possessory

These are rights to occupy the property. Now or future.

Filing a Mechanic's Lien

To obtain a mechanic's lien, parties must work under contract (including implied contracts) with the owner of a property or the owner's representative. Parties don't have to go to court to file the mechanic's lien, but they do need to file it within the deadline. In the state of New York, time limits for filing a mechanic's or materialman's lien are as follows: Within four months of the material being supplied or labor being completed if it's a single-family residence Within eight months if it's some other type of property Mechanic's liens only attach to the property on which the work was done, and they last for a period of one year (but can be renewed).

Exempt from Transfer Taxes

Transfers between governmental bodies Transfers by educational or religious institutions Transfers of real estate as security for a loan Real estate gifts

Attachment Liens (writ of attachment)

What if a lawsuit is not yet settled? If one of the parties thinks they may lose the case and lose their property, wouldn't they just sell it before the court enters a judgment? That's where attachment liens come in. Plaintiffs in a lawsuit may seek a writ of attachment, in which the court seizes property until it reaches a judgment. A writ of attachment is also called an attachment lien. (So don't get too attached to the writ part!) Creditors must post a surety bond or a deposit large enough to cover any potential losses the defendant might suffer in order to obtain a writ of attachment. This protects debtors if the court decides in their favor. An attachment lien is a general, involuntary lien and may attach to all of the owner's property except their homestead property.

Deed Restrictions Examples

What type of animals may be kept on the property 🐴 The size and architectural design of buildings on the property 🏠 Limits on the type of grass or plants that can be planted on the property 🌱 Setback lines that indicate no improvement can be closer than a certain number of feet to the front, back, or side property lines (Note: This might prevent someone from installing a swimming pool or adding a room to the home.) 🚫

Closing and Taxes

When a closing takes place, the title company will calculate how much is owed for the taxes up to that day. Then the title company will take away a portion of the amount the seller is receiving from the buyer and give it back to the buyer. This amount will be applied to the buyer's closings costs. At the end of the year, the buyer will be responsible for the entire year's taxes since they have already received the benefit of the tax amount that the seller had to give up on closing day. This is typically preferred to trying to collect taxes from the seller long after the closing. There will be times when a closing will be delayed. This delay could happen because there are documents missing that the title company needs or because the lender does not have everything they need to agree to the mortgage. A delayed closing means frustration for all involved: the buyer can't move in, the seller cannot get their money, the agents can't get their commissions, the mortgage company has to recalculate some of their fees, the title company cannot close the file. Whew! Plus, the money and documents are all with the escrow agent, but now some changes will have to be made because of the delay.

Federal Tax Liens

When a person does not pay Internal Revenue Service (IRS) taxes, such as the federal income tax, the IRS may obtain a federal tax lien. This is a general, involuntary lien that is held against all of the defaulting taxpayer's property. The IRS will first assess the taxpayer's liability, then send a Notice and Demand for Payment to the taxpayer. If the taxpayer does not respond within ten days after receiving this notice, the IRS may then create a lien for the amount of the debt. The lien creates a claim on the taxpayer's real and personal property, including any property purchased after the lien is filed. A federal tax lien may be released if the taxpayer satisfies the debt (unpaid income taxes) within 30 days by paying the amount due or by submitting a bond that guarantees payment of the debt. Homeowners and investors must pay federal income tax on profit made from the sale or use of real estate. However, both homeowners and investors can reduce these taxes through the use of tax shelters.

Deceased Person's Debt

When a person passes away, any debts they have must be paid. This responsibility will fall to executor of the person's will if they have one, or to the probate court if they don't. Debts are paid using liquid assets (like money in a bank account) if possible. If the deceased person's cash reserves won't cover the debt, real and personal property will be liquidated.

Tax Rate Calculation

When a taxing district creates a budget for a fiscal year, it must determine the total expected expenses, as well as the expected revenues from sources like revenue sharing and fees. The difference between total expenses and total revenue is equal to the amount of money that the district must raise from the collection of real estate taxes. If a district expects to raise $40 million in revenues and expects to spend $50 million in a given year, then the district must raise $10 million in real estate taxes. To determine the tax rate applied to each property owner, the district divides the total amount to be raised from real estate taxes by the total assessed value of all real estate in the district.

Investment in Tax Liens

When a taxpayer fails to pay their real estate taxes, the state may impose a tax lien on the property and sell the tax lien at a tax sale. (Who doesn't love a good sale?) The highest bidder on the tax lien may purchase the lien. The buyer receives a tax lien certificate, which entitles them to one of the following: A yield from the lien that must be paid by the defaulting taxpayer upon redemption Title to the property after a specified period of time The buyer in this situation is not purchasing the property, only the tax lien on the property. These provisions make tax lien sales a lucrative opportunity for investment. These are somewhat risky, however. In some states, if the delinquent taxpayer declares bankruptcy, IRS liens or liens from lenders may take priority, rendering the tax lien certificate worthless. Another risk associated with tax lien sales is that they are often sold with little opportunity to inspect the property. The purchaser may discover problems after obtaining the tax lien certificate.

Possessory and Non-Possessory Interests

When someone has an interest in a piece of real estate, it can be possessory or non-possessory. An interest in property is possessory if it includes the right to possess and occupy the property, now or in the future. This is the kind of interest you would have in your own home. An interest in property is described as non-possessory if it does NOT include the right to possess or occupy the property. That brings us to the topic of this chapter: encumbrances.

subordination agreement

a contract that gives a mortgage recorded at a later date priority over a previously recorded mortgage

lis pendens (Judgment Liens)

a document recording at the courthouse giving notice that a lawsuit is pending on a particular piece of property In most cases, the buyer will back out of the transaction Judgments are decrees given by courts at the conclusion of lawsuits. They may specify that one party to the lawsuit owes money to the other party. The winning party can claim a lien against the loser's real and personal property. That means judgment liens are general, involuntary liens. The person who is owed payment gets a certificate of judgment from the court and files it in the county where the other party owns property. It can be filed in multiple counties if needed. A judgment lien is valid for 10 years and can be renewed for an additional 10 years. Even though most judgment liens are involuntary, I want to note that it's possible for a judgment lien to be voluntary under certain circumstances. this is a voluntary act. It's called a confession of judgment

general lien

a lien for which the real estate AND personal property may be sold to satisfy the debt

tax lien

a lien placed on real property to secure unpaid taxes IRS (income) tax liens, which are general liens. Governments typically levy two types of taxes on real estate: Special assessments (also called improvement taxes) Ad valorem taxes (based on the assessed value of the property)

specific lien

a lien that applies to a certain property only

voluntary lien

a lien that is created on purpose and with the agreement of the owner of the property in question That means the property owner chose to initiate a lien that would not otherwise exist. On the surface, liens aren't very attractive. They burden the title and put the property at risk of being seized and liquidated to repay the debt. Who wants a lien?

involuntary lien

a lien that is obtained through a government law without the owner's consent The property owner does not take any action to initiate the lien. Real estate tax liens and judgment liens are examples of involuntary liens.

easement for light and air (sometimes called a view easement)

a negative easement that prevents the owner of adjoining land from doing anything that could block light and air from the dominant tenement

easement by necessity

a type of easement by implication that occurs when the dominant tenement could not be used without an easement, even without a longstanding, apparent use When an owner cuts up a larger piece of property into two or more pieces to sell them off, it's possible that the owners of the properties in the back will be landlocked - they won't have a road to get in or out of the property unless they drive across someone else's land. Since there is no other choice but to use someone else's land, the people who need a way in and out will be granted an easement by necessity. In other words, it is necessary for them to have the easement.

mechanic's lien

a type of involuntary, specific lien that a mechanic or materialman can impose upon a property if the property owner fails to pay for materials or work done on the property Mechanic's liens protect suppliers, contractors, architects, engineers, surveyors, and other parties whose labor or materials have improved the value of real property. Mechanic's liens are based on the enhancement of value theory: The parties who performed the labor or supplied the materials have increased the value of the real estate, and thus have an interest in the property. The property itself becomes security for money owed. For example, a homeowner might hire a contractor to add an additional room to their home. If the homeowner refuses to pay after the work is completed, the contractor may enforce a mechanic's lien against the property. A court can even force the homeowner to sell their home (as long as it's not a homestead) to satisfy the debt. When the home is sold, the contractor will receive compensation.

party wall

a wall shared by two separate properties; the owners on each side share the right of use, often as an easement Party walls are very common in condos. Maintenance costs related to the party wall will be shared between the two parties.

easement by implication

an easement created when land is divided and there is a longstanding, apparent use that is reasonably necessary for use of the dominant tenement; created by operation of law (not express grant or reservation)

right of way

an easement giving the holder the right to cross another's land

easement by prescription

an easement granted after the dominant estate has used the property in a continuous and open manner for a prescribed period of time without the owner's permission Right sometimes acquired through usage To establish an easement by prescription, the area in question would have to have been used continuously by the non-owner of the property for at least 10 years. Open and notorious is a way of saying that the use of the property can't be a secret. It should be obvious to anyone who cares to observe the property. If the owner keeps an eye on the property, they would definitely know about it. Hostile and adverse means that the person or people using the property do NOT have permission from the landowner. If there is permission, there is no easement by prescription. The easement could cause the owner serious harm or just a slight inconvenience, but in general it will be against their best interests. And although the property use by the non-owner must be sustained for at least 10 years, it doesn't have to be constant. The frequency of use just needs to be consistent with how an average owner would use that type of property. One more note about easements by prescription: They're very unlikely to be acquired against property that is owned by the government.

easement in gross

an easement that applies to the person or entity, not the specific land The person or company who benefits from an easement in gross is called the dominant tenant. They can sell or assign this easement to another company or person. Example: An electric company would have the right to be on someone's land to clear limbs from power lines thanks to an easement in gross.

Easement Appurtenant

an easement that exists when two different parties own adjacent parcels of land and one owner has the ability to cross the other's land This type of easement transfers with the land and cannot be discontinued by a new property owner.

easement

an interest in, or a right to use, another individual's land or property, generally for a specific, limited purpose

non-possessory

describes an interest in property that does not include the right to possess or occupy the property

servient tenement

describes the parcel of land that must allow an adjacent owner to cross; an easement appurtenant exists at the expense of this party

easement by condemnation

easement in which private property is taken for public use via eminent domain; declaration that a structure must be closed or demolished because it is unfit for occupants Road makings by government

mortgage (Most common voluntary lien)

is a legal agreement between a creditor and borrower in which the creditor lends money with interest to the borrower for the purchase of property with the condition that the creditor takes ownership of the title if the borrower defaults in repayment of the loan As you know, a mortgage is a common type of voluntary lien. Typically, when a person buys a home, the home itself becomes collateral for the loan. The lender obtains a mortgage lien with the homebuyer's consent. Mortgage liens are specific liens because they only apply to the property that is secured by the debt.

encumbrance

non-possessory interest in a property that burdens the title

encroachment

physical property that crosses the boundary into a neighboring landowner's property An encroachment is created when one person's property (such as a fence, tree, or driveway) crosses the property boundary into an adjacent property. It's a physical intrusion on someone else's property without direct permission.

homestead

primary residence

Monetary

relating to money

appurtenances

rights that run with real property ownership; most often transferred with the property, but possible to sell separately

dominant tenement

the parcel of land that benefits from an easement appurtenant by having the right to cross another owner's adjacent land

license

the revocable and temporary permission to use someone else's property for a specific purpose A license is temporary and can be withdrawn at any time, upon the sale of the property to someone else, or when one of the parties dies. Example: A landowner decides to give a certain person permission to hunt on their property.