Encumbrance

AAA

DEFINITION of 'Encumbrance'

A claim against a property by another party. Encumbrance usually impacts the transferability of the property and can restrict its free use until the encumberance is removed. The most common instances of an encumbrance occurs in real estate such as an outstanding mortgage or unpaid property taxes. However, encumbrance can also be used in an accounting context to refer to restricted funds inside an account that are to be used only for a specific liability.

INVESTOPEDIA EXPLAINS 'Encumbrance'

In real estate, if the property has an encumbrance on its title, this will affect the transferability of the title to another party. Encumbrances can also affect property other than real estate such as car titles. With respect to encumbrance accounting, the presence of an encumbrance can give the illusion that there are more available funds inside an account than is actually free for use. In both cases, it is best to understand the details and implications of an encumbrance before engaging in any transaction.

RELATED TERMS
  1. Real Estate

    Land plus anything on it, including buildings and natural resources.
  2. Encroachment

    A situation in real estate where a property owner violates the ...
  3. Silent Automatic Lien

    A lien that does not appear in any public record. This is a method ...
  4. Prior Lien

    A lien that is recorded prior to any other claims. Prior liens ...
  5. Lien

    The legal right of a creditor to sell the collateral property ...
  6. Property

    1. Anything over which a person or business has legal title. ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Home & Auto

    Attention Home Buyers! Why You Need A Lawyer

    Property transactions are complex and subject to specific state/local rules. A professional can simplify the process.
  2. Options & Futures

    The Foundation Of Structured Settlements

    This annuitized payment setup should be arranged through impartial attorneys and tax agents.
  3. Options & Futures

    20 Investments You Should Know

    To take advantage of all your investing options, you need to know what your choices are. Here we tell you about the diverse features and advantages of 20 different financial instruments.
  4. Investing

    What's a Debit Note?

    A debit note is a document used by a seller to inform a purchaser of a dollar amount owed. As the name indicates, it is a note from the seller that a debit has been made to the purchaser’s account. ...
  5. Credit & Loans

    Reverse Mortgages: How To Find A Good One

    Finding a reverse mortgage generally means using a lender that specializes in them. Here's how to find a reputable one.
  6. Investing

    What's Capitalization?

    Capitalization has different meanings depending on the context.
  7. Stock Analysis

    How Are Interest Rates Affecting Annaly Cap Mgmt?

    Annaly Capital Management reported a net loss of $658 million thanks to the mortgage REIT's strategy of hedging its exposure to higher interest rates.
  8. Savings

    Mortgage Faceoff: Bank of America Vs. Wells Fargo

    Which bank offers the better mortgage deal? Here's how they compare on two popular types of mortgage.
  9. Fundamental Analysis

    The Best 5 Online Accounting Systems For Small Business

    Running a small business can be difficult, but thanks to these online accounting services, taking care of payroll doesn't have to be.
  10. Credit & Loans

    How To Become a Mortgage-Backed Securities Analyst

    Specializing in structured or derivative credit products like mortgage-backed securities requires education and prior experience in the mortgage field.

You May Also Like

Hot Definitions
  1. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  2. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  3. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  4. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  5. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  6. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
Trading Center