DEFINITION of 'Unencumbered'

An asset or property that is free and clear of any encumbrances such as creditor claims or liens. An unencumbered asset is much easier to sell or transfer than one with an encumbrance. Examples of typical unencumbered assets are a house without any mortgage or other lien on it, a car where the automobile loan has been paid off or stocks purchased in a cash account, rather than a margin account.

BREAKING DOWN 'Unencumbered'

For the majority of consumers, especially young couples and recent graduates, high-value assets such as real estate and cars are unlikely to be unencumbered, since these purchases are generally financed with debt. Over time, as the mortgage or car loan is paid off, these assets become unencumbered. A title search is a key part of the due diligence process for a buyer of real estate or a used car to check if the asset is indeed unencumbered or has outstanding liens.

  1. Encumbrance

    A claim against a property by a party that is not the owner. ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Defective Title

    A piece of property or asset that has a publicly-recorded encumbrance, ...
  4. Margin

    1. Borrowed money that is used to purchase securities. This practice ...
  5. Lien

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

    Equity is the value of an asset less the value of all liabilities ...
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    Federal Housing Administration (FHA) loans were created to promote homeownership. These loans have lower down payment requirements ... Read Full Answer >>
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