Property purchasers should be concerned about existing encumbrances, liens or any such restrictions over the property that may prevent them from establishing clear title upon purchasing the property.
It’s important to understand the different types of legal claims that may be attached to it. Three common types of legal claims that can affect a property are caveats, liens, and encumbrances.
In this article, we’ll explain what each of these terms means and how they can impact a property purchase.
What is a caveat?
A caveat is a legal notice that is placed on a property title to alert potential buyers and lenders that someone has an interest in the property. This interest can be a financial claim, such as a mortgage or a claim to a share of the property, or it can be a claim to the property itself.
A caveat can be placed on a property title by anyone who has a legal interest in the property, including the owner, a mortgage lender, or a government agency.
A caveat may exist if a notice has been given by a party declaring they have an interest in the property.
The property should not be purchased until the caveat has been removed from the title.
What is a lien?
A lien is a legal claim on a property that is used to secure payment of a debt. A lien can be placed on a property by a creditor, such as a contractor or a supplier, who has provided goods or services to the property owner but has not been paid.
A lien gives the creditor the right to take possession of the property if the debt is not paid.
A lien occurs when a party has a right to take possession of or sell the property belonging to another person as security or payment for a debt that person owes (e.g. government taxes).
What is an encumbrance?
An encumbrance is a general term that refers to any legal claim on a property. This can include caveats, liens, and other types of claims, such as zoning restrictions or easements. Encumbrances can impact the use or value of a property, and it’s important to be aware of them when purchasing a property.
An encumbrance is a claim against the property, e.g. an outstanding mortgage over the property, or an easement which means that others have a right to use the property.
It’s important to note that a caveat, lien, or encumbrance does not necessarily mean that a property is not a good purchase. However, it’s important to understand the nature of the claim and how it may impact your use or ownership of the property. For example, a lien placed by a contractor may be resolved by paying off the debt, while a zoning restriction may limit the potential uses of the property.
When purchasing a property, it’s important to conduct a thorough title search to identify any existing caveats, liens, or encumbrances. A title search is typically conducted by a lawyer or conveyancer and will reveal any legal claims on the property.
It’s also important to be aware of the potential for new caveats, liens, or encumbrances to be placed on the property after the purchase. For example, if you take out a mortgage to purchase the property, the lender will place a caveat on the property title to secure their interest in the property. Additionally, if you fail to pay taxes or debts associated with the property, a lien or encumbrance may be placed on the property.
The borrower and/or the lender can purchase title insurance which protects them against loss if problems with title or other issues such as illegal structures on the property arise subsequent to purchase
How can I find out if my property is affected by a caveat, lien or encumberance?
You may obtain this information by requesting a Title Search of a property with the relevant State Department or engage a solicitor or property conveyancing agent who can perform this request for you.
In conclusion, understanding the different types of legal claims that may be attached to a property is essential for anyone considering purchasing a property. Caveats, liens, and encumbrances can have a significant impact on the use and value of a property, and it’s important to be aware of them before making a purchase.
Conducting a thorough title search and being aware of the potential for new claims to be placed on the property after the purchase can help protect your interests as a property owner.