Chapter 3 Encumbrances on Real Property
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Any claim, charge, or liability held by someone other than the owner of property that may diminish the value or use of a property. May not prevent the transfer of title.
Lien (2 types)
a right given by law to certain creditors to have their debts paid out of the property of a defaulting debtor, usually by means of a court sale. An encumbrance on real property that can be general or specific.
Specific Lien (3 types)
is secured by a specific parcel of property and affects only that particular property.
Mortgage and deed of trust liens
a voluntary specific lien on real estate given to a lender by a borrower as security for a real estate loan. Most common lien/encumbrance.
Real Property tax and special assessment liens
Specific, involuntary. Failure to pay taxes. As a superior lien, takes priority over all other liens. Real property is taxed on an ad valorem (according to value) basis.
- Specific, involuntary. Not paying for work or when the general contractor has been paid but has not paid the subcontractors or suppliers.
- Work must be under contract (expressed or implied)
- Filed within 120 days after last furnishing the labor or materials. Action must be brought within 180 days.
General Liens (4 types)
- Affect all property of a debtor, both real and personal.
- Judgements, Personal property tax liens, State tax lien, federal tax lien.
- involuntary, general. A decree issued by a court.
- When docketed in a county, affects all current and future real estate and personal property owned by the judgement debtor in that county. Real estate in other counties not affected unless docketed in those counties.
- Good for 10 years from the date of the judgement.
Personal Property Tax Liens
- General, involuntary lien against all the property owned by the taxpayer for not paying tax.
- Have priority over other types of liens.
State tax liens
- Both unpaid state inheritance taxes and state income tax give rise to general, involuntary liens against all property.
- Last for 10 years
Federal Tax Liens
an IRS tax lien. Priority is based on the date of filing or recording; it does not supersede previously recorded liens.
Effects of Liens
Liens attach to the property not the property owner. Therefore, a purchaser who buys real estate under a delinquent lien does face a possible loss of the property if the creditors take action to enforce the payments of their liens.
Priority of Liens
Real estate taxes, personal property taxes, and special assessments will be paid first. The remainder will be used to pay other liens in the order of the date and time thy were filed (pure race system) Remember, Mechanic's lien dates back to the date the labor began, not the date the lien was filed.
Private agreements placed in the public record that affect the use of the land.
- "Litigation Pending"
- a notice that an action potentially affecting the title to a particular property has been filed; title is effectively unmarketable during the litigation.
- Considered an encumbrance.
Writ of attachment
When there's a debt other than a mortgage, a writ of attachment is requested in court by a creditor. By ordering a lien on the debtor's assets until the law suit is decided and a judgement is rendered, the unsecured real estate remains available to satisfy the judgement.
Writ of Execution
Issued after a judgement is recorded directing the county sheriff to sell the property to satisfy the judgement.
Easements (2 types)
- Grants the use of a property for a particular purpose. Not a form of ownership.
- Easement appurtenant and Easement in gross
- An easement that is annexed to the ownership of one parcel of land and used for the benefit of another parcel of land.
- Servient Tenement - the tract over which the easement runs.
- Dominant Tenement - the tract that benefits from the easement.
- Easement Appurtenant runs with the land. (Goes with the title)
an exterior wall of a building that straddles the boundary line between two owner's lots. Lot owners own the half on their lot, and have an easement appurtenant in the other half for support of their building. Expenses are usually shared.
Easement in Gross
- A personal interest in or right to use the land of another.
- No parcel of property benefits so no dominant tenement.
- Commercial easements in gross - railroads, billboards, utilities. Last an indefinite period of time and may be assigned or conveyed.
- Easements in Gross are irrevocable during the owner's life, usually are not assignable, and terminate on the death of the personal easement owner.
Creating an Easement (5 ways)
- Express Grant - written agreement b/w both parties. Must be in writing.
- Express Reservation - created by the grantor in a deed of conveyance by reserving and easement over the sold land.
- Necessity - forced by law to allow access to a property.
- Prescription - 20 years of use without permission and being visible, open, and notorious.
- Condemnation - acquired for a public purpose through the power of eminent domain (government takeover of a property). Owner payed just compensation.
Terminating an Easement (10 ways)
- Purpose no longer exists.
- Merger - easement holder becomes owner of the land with the easement.
- By release of the right of easement to the owner of the servient tenement
- By abandonment of the easement
- By non-use of a prescriptive easement
- By adverse possession by the owner of the servient tenement.
- By destruction of the servien tenement (demolition of a party wall)
- By nonrecordation, not recording the easement
- By lawsuit against someone claiming the easement
- By excessive use, as when a residential easement is converted to commercial purposes.
- a personal non-transferable privilege to enter the land of another for a specific purpose.
- Differs from an easement in that it can be terminated or revoked. Ends with death or sale.
When any part of an improvement extends beyond the land of its owner on to someone else's land.
ad valorem tax, amount is based on the value of the property. The Machinery Act governs ad valorem taxes.
The Machinery Act
Regulates standards for real property taxation, tax assessment, tax appraisal, and requirements for tax-exempt status.
Determining the value of real estate for tax purposes. Assessed value is based on sales prices of comparable properties. The NC Machinery Act mandates that assessed value is 100 percent of market value.
1/1,000 of a dollar, or $0.001
The reappraisal of real property every 8 years.
Annual taxes formula
Tax Rate X Assessed value
Assessed Value Formula
Annual Taxes / Tax Rate
Tax Rate Forumula
Annual Taxes / Assessed Value
Special taxes levied on real estate for public improvements made to that real estate (sidewalks, curbs, paved streets, etc.)
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