Section 2 Unit 1

Question 1

encumbrance

Answer 1

*non-possessory interests limiting the legal owner’s rights

an interest in and right to real property that limits the legal owner’s freehold interest.

In effect, an encumbrance is another’s right to use or take possession of a legal owner’s property, or to prevent the legal owner from enjoying the full bundle of rights in the estate.

Question 2

An encumbrance does not include:

Answer 2

the right of possession and is therefore a lesser interest than the owner’s freehold interest. For that reason, encumbrances are not considered estates. However, an encumbrance can lead to the owner’s loss of ownership of the property.

Question 3

What are the two most common encumbrances?

Answer 3

Easements and liens

Question 4

What is an easement? Ex. utility easement

Answer 4

*a right to use portions of another’s property

enables others to use the property, regardless of the owner’s desires.

an interest in real property that gives the holder the right to use portions of the legal owner’s real property in a defined way. Easement rights may apply to a property’s surface, subsurface, or airspace, but the affected area must be defined.

Question 5

What is a lien? Ex. tax lien

Answer 5

can be placed on the property’s title, thereby restricting the owner’s ability to transfer clear title to another party.

Question 6

The two general types of encumbrance are:

Answer 6

those that affect the property’s use and those that affect legal ownership, value and transfer.

Question 7

Restrictions on Owner’s Use by Others’ Rights to Use are:

Answer 7

easements
encroachments
licenses
deed restrictions

Question 8

Restrictions on Ownership, Value and Transfer are:

Answer 8

liens

deed conditions

Question 9

The receiver of the easement right is:

Answer 9

the benefited party

Question 10

The giver of the easement right is:

Answer 10

the burdened party

Question 11

Essential characteristics of easements include:

Answer 11

Must involve the owner of the land over which the easement runs, and another, non-owning party.
Pertains to a specified physical area within the property boundaries.
May be affirmative or negative usage.

Question 12

Affirmative

Answer 12

allowing a use, such as a right-of-way.

Question 13

Negative

Answer 13

prohibiting a use, such as an airspace easement that prohibits one property owner from obstructing another’s ocean view.

Question 14

The two basic types of easement are:

Answer 14

appurtenant and gross.

Question 15

Easement appurtenant

Answer 15

*dominant tenement’s right to use or restrict adjacent servient tenement; attaches to the real estate
easement by necessity: granted by necessity, e.g. to landlocked owners
party wall: negative easement in a shared structure

gives a property owner a right of usage to portions of an adjoining property owned by another party.

The term appurtenant means “attaching to.”

The property enjoying the usage right is called the dominant tenement, or dominant estate.

The property containing the physical easement itself is the servient tenement, since it must serve the easement use.

Question 16

An easement appurtenant attaches to the estate and transfers:

Answer 16

with it unless specifically stated otherwise in the transaction documents.

The easement attaches as a beneficial interest to the dominant estate, and as an encumbrance to the servient estate.

The easement appurtenant then becomes part of the dominant estate’s bundle of rights and the servient estate’s obligation, or encumbrance.

Question 17

Easement appurtenant rights and obligations automatically transfer with the property upon:

Answer 17

transfer of either the dominant or servient estate, whether mentioned in the deed or not.

For example, John grants Mary the right to share his driveway at any time over a five-year period, and the grant is duly recorded. If Mary sells her property in two years, the easement right transfers to the buyer as part of the estate.

Question 18

The servient tenement, as well as the dominant tenement, may use the easement area, provided:

Answer 18

the use does not unreasonably obstruct the dominant use.

Question 19

An easement by necessity is:

Answer 19

an easement appurtenant granted by a court of law to a property owner because of a circumstance of necessity, most commonly the need for access to a property.

Question 20

Landlocked

Answer 20

without legal access to a public thoroughfare.

Question 21

Since property cannot be legally landlocked a court will grant an owner of a landlocked property an easement by:

Answer 21

by necessity over an adjoining property that has access to a thoroughfare.

The landlocked party becomes the dominant tenement, and the property containing the easement is the servient tenement.

Question 22

A party wall is a common wall shared by two separate structures along a property boundary.

Answer 22

Party wall agreements generally provide for severalty ownership of half of the wall by each owner. Other structures that are subject to party agreements are common fences, driveways, and walkways.

The agreement grants a negative easement appurtenant to each owner in the other’s wall. This is to prevent unlimited use of the wall includes establishing responsibilities and obligations for maintenance and repair of the wall.

Question 23

An easement in gross is a personal right:

Answer 23

• a right to use property that does not attach to the real estate
  personal: not revocable or transferrable; ends upon death of easement holder
  commercial: granted to businesses; transferrable

one party grants to another to use the grantor’s real property. An easement in gross may be personal or commercial.

The right does not attach to the grantor’s estate. It involves only one property and does not benefit any property owned by the easement owner.

There are no dominant or servient estates in an easement in gross.

Question 24

An easement may be created by:

Answer 24

voluntary action, by necessary or prescriptive operation of law, and by government power of eminent domain.

Question 25

Voluntary.

Answer 25

A property owner may create a voluntary easement by express grant in a sale contract, or as a reserved right expressed in a deed.

Question 26

Necessity.

Answer 26

A court decree creates an easement by necessity to provide access to a landlocked property.

Question 27

Easement by prescription.

Answer 27

If someone uses another’s property as an easement without permission for a statutory period of time and under certain conditions, a court order may give the user the easement right by prescription, regardless of the owner’s desires.

For example, a subdivision owns an access road, which is also used by other neighborhoods to access a grocery store. One day, the subdivision blocks off the road, claiming it has never granted the neighbors permission to use the road. If the neighbors have been using the road for the prescribed period, they may sue for an easement by prescription, since the subdivision owners can be assumed to have known of the usage.

Question 28

Eminent domain.

Answer 28

Government entities can create easements through the exercise of eminent domain, wherein they condemn a portion of a property and cause it to be sold “for the greater good.” A typical example is a town’s condemnation of private land to create a new municipal sewer system.

Question 29

Easements terminate by:

Answer 29

express release of the right by the easement holder
merger, as when a dominant tenement acquires the servient property, or vice versa
purposeful abandonment by the dominant tenement
condemnation through eminent domain
change or cessation of the purpose for the easement
destruction of an easement structure, such as a party fence
non-use of an easement by prescription

Question 30

Encroachment

Answer 30

*intrusions of real estate into adjoining property; can become easements

is the unauthorized, physical intrusion of one owner’s real property into that of another. Examples: a tree limb extending into the neighbor’s property violating his or her airspace, a driveway extending beyond the lot line onto the neighbor’s land, or a fence built beyond the property line.

Question 31

Deed restriction

Answer 31

limitation imposed on a buyer’s use of a property by stipulation in the deed of conveyance or recorded subdivision plat. Deed restrictions take precedence over zoning ordinances if they are more restrictive.

Question 32

Deed restrictions are either covenants or conditions.

Answer 32

A condition can only be created within a transfer of ownership. If a condition is later violated, a suit can force the owner to forfeit ownership to the previous owner.

A covenant can be created by mutual agreement. If a covenant is breached, an injunction can force compliance or payment of compensatory damages.

Question 33

Lienor

Answer 33

creditor who places a lien on a property

Question 34

Lienee

Answer 34

the debtor who owns the property

Question 35

Liens may be voluntary and involuntary; general and specific; superior and junior.

Answer 35

A property owner may create a voluntary lien to borrow money or some other asset secured by a mortgage.

An involuntary lien is one that a legal process places against a property regardless of the owner’s desires.

Liens claims attaching to real and personal property as security for debt.

Question 36

statutory lien

Answer 36

statutory law imposes an involuntary lien. A real estate tax lien is a common example.

Question 37

equitable lien

Answer 37

court action imposes an involuntary lien. An example is a judgment lien placed on a property as security for a money judgment.

Question 38

general lien

Answer 38

placed against any and all real and personal property owned by a particular debtor. An example is an inheritance tax lien placed against all property owned by the heir.

Question 39

specific lien

Answer 39

attaches to a single item of real or personal property, and does not affect other property owned by the debtor. A conventional mortgage lien is an example, where the property is the only asset attached by the lien.

Question 40

Superior and inferior lien

Answer 40

receive first payment from the proceeds of a foreclosure. The superior category includes liens for real estate tax, special assessments, and inheritance tax. Other liens, including income tax liens, are inferior.

Question 41

Superior liens in rank order

Answer 41

1. Real estate tax liens
2. Special assessment liens
3. Federal estate tax liens
4. State inheritance tax liens

Question 42

Junior liens: priority by date of recording

Answer 42

Federal income tax liens

State corporate income tax liens

State intangible tax liens

Judgment liens

Mortgage liens

Vendor’s liens

Mechanic’s liens (priority by date work was performed)

Question 43

Subordination

Answer 43

A lienor can change the priority of a junior lien by voluntarily agreeing to subordinate, or lower, the lien’s position in the hierarchy. This change is often necessary when working with a mortgage lender who will not originate a mortgage loan unless it is senior to all other junior liens on the property. The lender may require the borrower to obtain agreements from other lien holders to subordinate their liens to the new mortgage.

For example, interest rates fall from 8% to 6.5% on first mortgages for principal residences. A homeowner wants to refinance her mortgage, but she also has a separate home-equity loan on the house. Since the first-mortgage lender will not accept a lien priority inferior to a home equity loan, the homeowner must persuade the home equity lender to subordinate the home equity lien to the new first-mortgage lien.

Question 44

Real estate tax lien.

Answer 44

The local legal taxing authority annually places a real estate tax lien, also called an ad valorem tax lien, against properties as security for payment of the annual property tax. The amount of a particular lien is based on the taxed property’s assessed value and the local tax rate.

Question 45

Special assessment lien.

Answer 45

Local government entities place assessment liens against certain properties to ensure payment for local improvement projects such as new roads, schools, sewers, or libraries. An assessment lien applies only to properties that are expected to benefit from the municipal improvement.

Question 46

Federal and state inheritance tax liens.

Answer 46

Inheritance tax liens arise from taxes owed by a decedent’s estate. The lien amount is determined through probate and attaches to both real and personal property.

Question 47

Tax liens.

Answer 47

All tax liens other than those for ad valorem, assessment, and estate tax are junior liens. They include: Federal income tax lien (placed on a taxpayer’s real and personal property for failure to pay income taxes) State corporate income tax lien (filed against corporate property for failure to pay taxes) State intangible tax lien (filed for non-payment of taxes on intangible property) State corporation franchise tax lien (filed to ensure collection of fees to do business within a state)

Question 48

Judgment lien.

Answer 48

A judgment lien attaches to real and personal property as a result of a money judgment issued by a court in favor of a creditor. The creditor may obtain a writ of execution to force the sale of attached property and collect the debt. After paying the debt from the sale proceeds, the debtor may obtain a satisfaction of judgment to clear the title records on other real property that remains unsold.

During the course of a lawsuit, the plaintiff creditor may secure a writ of attachment to prevent the debtor from selling or concealing property. In such a case, there must be a clear likelihood that the debt is valid and that the defendant has made attempts to sell or hide property.

Question 49

Mortgage and trust deed lien.

Answer 49

In lien-theory states, mortgages and trust deeds secure loans made on real property. In these states, the lender records a lien as soon as possible after disbursing the funds in order to establish lien priority.

Question 50

Vendor’s lien.

Answer 50

A vendor’s lien, also called a seller’s lien, secures a purchase money mortgage, a seller’s loan to a buyer to finance the sale of a property.

Question 51

Municipal utility lien.

Answer 51

A municipality may place a utility lien against a resident’s real property for failure to pay utility bills.

Question 52

Mechanic’s lien.

Answer 52

A mechanic’s lien secures the costs of labor, materials, and supplies incurred in the repair or construction of real property improvements. If a property owner fails to pay for work performed or materials supplied, a worker or supplier can file a lien to force the sale of the property and collect the debt.

Any individual who performs approved work may place a mechanic’s lien on the property to the extent of the direct costs incurred. Note that unpaid subcontractors may record mechanic’s liens whether the general contractor has been paid or not. Thus it is possible for an owner to have to double-pay a bill in order to eliminate the mechanic’s lien if the general contractor neglects to pay the subcontractors. The mechanic’s lienor must enforce the lien within a certain time period, or the lien expires.

In contrast to other junior liens, the priority of a mechanic’s lien dates from the time when the work was begun or completed. For example, a carpenter finishes a job on May 15. The owner refuses to pay the carpenter in spite of the carpenter’s two-month collection effort. Finally, on August 1, the carpenter places a mechanic’s lien on the property. The effective date of the lien for purposes of lien priority is May 15, not August 1.

Question 53

All liens can be enforced by

Answer 53

the sale or other transfer of title of the secured property, whether by court action, operation of law, or through powers granted in the original loan agreement. The enforcement proceedings are referred to as foreclosure.

Question 54

State law governs the foreclosure process.

Answer 54

A statutory or court-ordered sale enforces a general lien, including a judgment lien. A lawsuit or loan provision authorizing the sale or direct transfer of the attached property enforces a specific lien, such as a mortgage. Real estate tax liens are enforced through tax foreclosure sales, or tax sales.

Question 55

Three types of foreclosure process enforce mortgage liens:

Answer 55

judicial foreclosure
non-judicial foreclosure
strict foreclosure

Question 56

Foreclosure Processes: Judicial

Answer 56

Default
Acceleration
Foreclosure suit
Notice
Sale
Deficiency judgment

Question 57

Foreclosure Processes: Non-judicial

Answer 57

Default
Acceleration
Notice
Sale
Deficiency suit

Question 58

Foreclosure Processes: Strict

Answer 58

Default
Acceleration
Foreclosure suit
Title to lender
Deficiency suit

Question 59

Judicial foreclosure

Answer 59

Judicial foreclosure occurs in states that use a two-party mortgage document (borrower and lender) that does not contain a “power of sale” provision. Lacking this provision, a lender must file a foreclosure suit and undertake a court proceeding to enforce the lien.

Question 60

Acceleration and filing.

Answer 60

If a borrower has failed to meet loan obligations in spite of proper notice and applicable grace periods, the lender can accelerate the loan, or declare that the loan balance and all other sums due on the loan are payable immediately.

Question 61

If the borrower does not pay off the loan in full, the lender then files a foreclosure suit, naming the borrower as defendant. The suit asks the court to:

Answer 61

terminate the defendant’s interests in the property
order the property sold publicly to the highest bidder
order the proceeds applied to the debt

Question 62

Lis Pendens.

Answer 62

In the foreclosure suit, a lis pendens gives public notice that the mortgaged property may soon have a judgment issued against it. This notice enables other lienholders to join in the suit against the defendant.

Question 63

Writ of execution.

Answer 63

If the defendant fails to meet the demands of the suit during a prescribed period, the court orders the termination of interests of any and all parties in the property, and orders the property to be sold. The court’s writ of execution authorizes an official, such as the county sheriff, to seize and sell the foreclosed property.

Question 64

Public sale and sale proceeds.

Answer 64

After public notice of the sale, the property is auctioned to the highest bidder. The new owner receives title free and clear of all previous liens, whether the lienholders have been paid or not. Proceeds of the sale are applied to payment of liens according to priority. After payment of real estate taxes, lienholders’ claims and costs of the sale, any remaining funds go to the mortgagor (borrower).

Question 65

Deficiency judgment.

Answer 65

If the sale does not yield sufficient funds to cover the amounts owed, the mortgagee may ask the court for a deficiency judgment. This enables the lender to attach and foreclose a judgment lien on other real or personal property the borrower owns.

Question 66

Right of redemption.

Answer 66

The borrower’s right of redemption, also called equity of redemption, is the right to reclaim a property that has been foreclosed by paying off amounts owed to creditors, including interest and costs. Redemption is possible within a redemption period. Some states allow redemption during the foreclosure proceeding at any time “until the gavel drops” at the sale. Other states have statutory periods of up to a year following the sale for the owner of a foreclosed property to redeem the estate.

Question 67

Non-judicial foreclosure

Answer 67

When there is a “power of sale” provision in the mortgage or trust deed document, a non-judicial foreclosure can force the sale of the liened property without a foreclosure suit. The “power of sale” clause in effect enables the mortgagee to order a public sale without court decree.

Question 68

Foreclosure process.

Answer 68

On default, the foreclosing mortgagee records and delivers notice to the borrower and other lienholders. After the proper period, a “notice of sale” is published, the sale is conducted, and all liens are extinguished. The highest bidder then receives unencumbered title to the property.

Question 69

Deficiency suit.

Answer 69

The lender does not obtain a deficiency judgment or lien in a non-judicial foreclosure action. The lender instead must file a new deficiency suit against the borrower.

Question 70

Re-instatement and redemption.

Answer 70

During the notice of default and notice of sale periods, the borrower may pay the lender and terminate the proceedings. Exact re-instatement periods vary from state to state. There is no redemption right in non-judicial foreclosure.

Question 71

Strict foreclosure

Answer 71

Strict foreclosure is a court proceeding that gives the lender title directly, by court order, instead of giving cash proceeds from a public sale.

On default, the lender gives the borrower official notice. After a prescribed period, the lender files suit in court, whereupon the court establishes a period within which the defaulting party must repay the amounts owed. If the defaulter does not repay the funds, the court orders transfer of full, legal title to the lender.

Question 72

Deed in lieu of foreclosure

Answer 72

A defaulting borrower who faces foreclosure may avoid court actions and costs by voluntarily deeding the property to the mortgagee. This is accomplished with a deed in lieu of foreclosure, which transfers legal title to the lienholder. The transfer, however, does not terminate any existing liens on the property.

Question 73

Easement creation

Answer 73

voluntary grant, court decree by necessity or prescription, eminent domain
by prescription: obtainable through continuous, open, adverse use over a period

Question 74

Easement termination

Answer 74

release; merger; abandonment; condemnation; change of purpose; destruction; non-use

Question 75

LICENSES

Answer 75

personal rights to use a property; do not attach; non-transferrable; revocable

Question 76

DEED RESTRICTIONS

Answer 76

conditions and covenants imposed on a property by deed or subdivision plat

Question 77

The process of enforcing a lien by forcing sale of the lienee’s property is called

Answer 77

foreclosure.

Question 78

A court renders a judgment which authorizes a lien to be placed against the defendant’s house, car, and personal belongings. This is an example of a

Answer 78

general judgment lien.

Question 79

There are two adjoining properties. An easement allows property A to use the access road that belongs to property B. In this situation, property A is said to be which of the following in relation to property B?

Answer 79

Dominant tenement

Question 80

An important difference between a judicial foreclosure and a non-judicial foreclosure is

Answer 80

there is no right to redeem the property in a non-judicial foreclosure.

Question 81

A property owner has an easement appurtenant on her property. When the property is sold to another party, the easement

Answer 81

transfers with the property.

Question 82

A certain property has the following liens recorded against it: a mortgage lien dating from three years ago; a mechanic’s lien dating from two years ago; a real estate tax lien for the current year; and a second mortgage lien dating from the current year. In case of a foreclosure, which of these liens will be paid first?

Answer 82

Real estate tax lien

Question 83

A property owner allows Betty Luanne to cross his property as a shortcut to her kindergarten school bus. One day the property owner dies. What right was Betty given, and what happens to it in the future?

Answer 83

A license, which terminates at the owner’s death

Question 84

Easements and encroachments are types of

Answer 84

encumbrance.

Question 85

A property survey reveals that a new driveway extends one foot onto a neighbor’s property. This is an example of

Answer 85

an encroachment.

Question 86

What is meant by a “lien-theory” state?

Answer 86

A state in which a mortgagor retains title to the property when a mortgage lien is created

Question 87

A brick fence straddles the property line of two neighbors. The neighbors agree not to damage it in any way. This is an example of

Answer 87

a party wall.

Question 88

What is the primary danger of allowing an encroachment?

Answer 88

Over time, the encroachment may become an easement by prescription that damages the property’s market value.

Question 89

An affirmative easement gives the benefited party

Answer 89

the right to a defined use of a portion of another’s real property.

Question 90

The lien priority of junior liens can be changed by a lienor’s agreement to

Answer 90

subordinate.

Question 91

Among junior liens, the order of priority is generally established according to

Answer 91

the date of recordation.

Question 92

A property owner who is selling her land wants to control how it is used in the future. She might accomplish her aim by means of

Answer 92

a deed restriction.

Question 93

A homeowner has hired a contractor to build a room addition. The work has been completed and the contractor has been paid for all work and materials but fails to pay the lumber yard for a load of lumber. What potential problem may the home owner experience?

Answer 93

The lumber yard may place a mechanic’s lien for the amount of the lumber against the homeowner’s real property.

Question 94

Which of the following describes a situation in which an easement might be created against the wishes of the property owner?

Answer 94

The property has been continuously used as an easement with the knowledge but without the permission of the owner for a period of time.

Question 95

A defaulting borrower may avoid foreclosure by giving the mortgagee

Answer 95

a deed in lieu of foreclosure.

Question 96

What distinguishes a lien from other types of encumbrance?

Answer 96

It involves a monetary claim against the value of a property.