Is A Mortgage An Encumbrance?

In the real estate world, there is a specific lingo consisting of a variety of words and one you might have heard tossed around is an encumbrance.

So,is a mortgage an encumbrance? A mortgage is an encumbrance. An encumbrance is any legal restriction on the usage and or transfer of property. A mortgage is an encumbrance because it usually has a lien against a borrower’s property.

Mortgages require a lot of thought and assessment. Before getting a mortgage a person needs to do their research about everything to do with the loan and the property so that terms such as encumbrance do not cause any form of confusion.

A house is probably the most expensive purchase you make in life and thus preparation, research, and proper assessment of your financial situation are essential in preventing any cases of buyer’s remorse. 

Encumbrance and How it Relates to Your Mortgage 

An encumbrance is any legal claim against a property by any party other than the owner. Any mortgage you get can be termed as an encumbrance because of the ramifications if the owner does not fulfill their payment obligations which is a foreclosure. 

There are different types of encumbrance in relation to real estate. 

  • Mortgages 
  • voluntary and involuntary Liens
  • Easements

Mortgage or Deed of Trust

When you finance the purchase of a property, the transaction commonly involves 2 documents. A promissory note to represent your payment obligation and the mortgage, or in some cases a deed of trust that secures the note. 

When you complete paying off your deed of trust or mortgage you remove the encumbrance from the public records and any restrictions you had on the home are lifted. 

With mortgages, the official document used to show that a lender has released you from the mortgage is the reconveyance deed. It shows the lender acknowledges that the payment has been made in full. 

Voluntary Lien

It is a lien that a person signs willingly and it becomes recorded against a certain property in public records. A voluntary lien is used in exchange for funds changing hands or for a second loan for example if an owner decides to refinance their loan. 

Involuntary liens 

When talking about involuntary liens the most common examples are mechanics liens and judgment liens. They are involuntary because the homeowner doesn’t have to agree for the lien to be placed against a property. 

For example, let’s assume a seller and a buyer agree on the sale of a property. However, for some reason, the buyer does not close by the deadline. The seller can decide to cancel their contract without the consent of the buyer. 

But then, when the seller tries to sell the property to another without extending the closing dates for the former buyer, the former buyer can go to court and submit a ‘Lis Pendens which means that action is pending. This will prevent the sale of the property until the court resolves the issue. So, the encumbrance prevents any type of sale of the property. 

Easements 

Easements refer to when an owner of a property has the right to a piece of land but for some reason, another entity also possesses rights to the same land. So, some actions will be prohibited in the land because there are two parties with some control. 

Easements qualify to be encumbrances since they affect rights to a property and offer restrictions over a certain piece of land. For example, if a person has a property located where a sewer is proposed to run, they cannot take an action like building a pool. 

If they try, the city will legally dig it all up and will not require your consent to do it. The good news is easements are noted in the assessor’s map of an area and so people will be informed of any other parties with rights to a piece of land before purchasing it. 

How to Remove the Encumbrance After You Clear Your Mortgage 

After completing the payment of your mortgage, the lien against your property does not just vanish. There are steps you need to take and in mortgage terms, it is called discharging a mortgage. Discharging your mortgage frees you from any payment obligation and eliminates the encumbrance placed against the title of your property. 

Other than clearing the mortgage, people discharge their mortgages for reasons such as; 

  • To be able to sell the property
  • When a person goes bankrupt and can’t complete mortgage payments 
  • Deciding to refinance your mortgage

The process of discharging your loan is not too complicated and a person can even complete it without any help. You would only need to follow these steps. 

  • Contact your lender and disclose your intentions to discharge the mortgage. 
  • Choose whether to contact your broker or handle the process yourself. The process is not very complicated but you can have them handle this process on your behalf. 
  • Fill out the required discharge authority form with all the details they have specified. Going to do this in person reduces the chances of making errors since you can always ask questions. 
  • Pay the discharge of mortgage fees which is usually about $250 but varies depending on the lender. 
  • Let the bank register your discharge of mortgage and lodge it with the Land Titles offices. 

You can choose to either complete the process from home through their website or do it in person by visiting the lender’s nearest branch. There is some information you need for filling out the discharge authority form.  This includes names, the account number of the loan, broker contacts, property details, and sometimes even the guarantor’s name.

Final thoughts

Paying off a mortgage is always a cause to celebrate since it means that you can do whatever you want with your home.

Whether you wanted to sell it or keep it as your primary residence is all up to you. The encumbrance on a mortgage restricts individuals during the period of payment but once you complete payment the lender does not have any right to your property.