In real estate financing, what does the term "encumbrance" refer to?

The term "encumbrance" primarily refers to any claim, liability, or restriction on a property that can affect its value or transferability. In real estate, the most common types of encumbrances are liens, easements, and restrictions that may encumber the property.

A legal claim that secures a payment against a property—while significant—specifically refers to a lien, which is a type of encumbrance. However, not all encumbrances are liens, which is an important distinction. Limitations on transferring ownership can include any restrictions placed on how a property may be used or sold, making this interpretation more encompassing of what an encumbrance could involve.

As such, understanding encumbrances as limitations on transferring property ownership helps clarify the broader implications of how they can affect marketability and the rights of the current owner. While encumbrances can provide benefits to some parties, they generally represent a burden for the property owner, influencing the decision-making process in real estate transactions.