What is considered an encumbrance on real property?

An encumbrance on real property is any claim, lien, or restriction on the property that may affect its use, value, or transferability. A public utility easement is a prime example of an encumbrance because it grants a utility company the right to use a portion of the property for utility purposes, such as installing power lines or water pipes. This easement limits the property owner’s full use of the land, as they cannot build structures or obstruct access in the area designated for the easement.

The concept of an encumbrance is crucial in real estate because it can have significant implications for property rights and the ability to sell or develop the property. Understanding what constitutes an encumbrance helps property owners assess the legal limitations that might affect their property.

In contrast, the other choices do not fit the definition of an encumbrance. A tax exemption is beneficial as it reduces financial burdens, a decrease in property value is a market condition rather than a legal claim, and a private loan with no obligations does not impose any restrictions or claims on the property.