Also known as: encumbrances on title · encumbrance · title encumbrance
Written by attorneys — see sources below.
A claim or interest in real property, other than an ownership interest, that burdens or affects the title. The term encompasses mortgages, liens, easements, and similar rights that may impair marketability or require disclosure in conveyances and estate administrations.
Evelyn Ellison, trustee of a family trust holding several parcels, granted a mortgage on trust land to secure a personal loan from her own bank. Beneficiary Enzo Eastwood discovered the transaction and sought to void it. The court treated the mortgage as an encumbrance created through a conflict of interest and allowed the beneficiary to rescind the transaction.
After Eugene Ellsworth died, the personal representative prepared the required inventory of estate assets. The list identified a recorded mortgage on the decedent's commercial building and stated the outstanding balance as an encumbrance. Heirs reviewing the inventory could then assess the net value of the property before distribution.
Edgewater Capital obtained a security interest in equipment located on real property owned by Eclipse Manufacturing. When determining priority, the court applied the statutory definition and classified the recorded mortgage on the underlying land as an encumbrance distinct from any ownership interest in the fixtures.
Esther Eisenberg, serving as personal representative, sold estate real property to a corporation in which she held a substantial interest. Ezra Eastman, an heir, challenged the sale. The court held the transaction voidable because the encumbrance created by the conflict of interest had not been approved by the court or authorized in the will.
The federal government assessed taxes against one spouse who held real property with his wife as tenants by the entirety. The Court examined whether the tax lien could attach despite state law restrictions on unilateral encumbrance and concluded that the lien constituted an encumbrance on the property rights of the taxpayer spouse.
In 1988, the Internal Revenue Service assessed $482,446 in unpaid income tax liabilities against Don Craft for his failure to file federal income tax returns for the years 1979 through 1986. At that time, Don Craft and his wife, respondent Sandra L. Craft, owned a piece of real property in Grand Rapids, Michigan, as tenants by the entirety. After notice of the federal tax lien was filed, the Crafts jointly executed a quitclaim deed purporting to transfer Don Craft's interest in the property to Sandra Craft for one dollar. When Sandra Craft later attempted to sell the property, a title search revealed the lien. The IRS agreed to release the lien to allow the sale on the condition that half of the net proceeds be held in escrow pending determination of the Government's interest. Sandra Craft then brought an action in the United States District Court for the Western District of Michigan to quiet title to the escrowed proceeds. The District Court granted summary judgment to the Government. On appeal, the United States Court of Appeals for the Sixth Circuit held that the tax lien did not attach to the property under Michigan law and remanded for consideration of the Government's fraudulent conveyance claim. On remand, the District Court found that the conveyance itself was not fraudulent but that the use of nonexempt funds to pay the mortgage constituted a fraudulent act, and it awarded the IRS a share of the proceeds. The Sixth Circuit affirmed that determination on the lien issue as law of the case. The Supreme Court granted certiorari to consider whether Don Craft had a separate interest in the entireties property to which the federal tax lien attached.
View caseElysium Media obtained a patent on a data-processing method used in financial services. When State Street Bank challenged validity, the court considered whether the claimed invention constituted an impermissible encumbrance on abstract ideas and ultimately upheld the patent as a practical application rather than a mere abstract claim.
Signature Financial Group, Inc. is the assignee of U.S. Patent No. 5,193,056. The patent issued on March 9, 1993, naming R. Todd Boes as the inventor. It is entitled “Data Processing System for Hub and Spoke Financial Services Configuration.” The patent is directed to a data processing system for implementing an investment structure. Mutual funds pool their assets in an investment portfolio organized as a partnership. This provides economies of scale in administering investments coupled with the tax advantages of a partnership. The system facilitates daily allocation of assets among the funds. It takes into account changes in the value of the portfolio's securities and each fund's assets. It calculates each fund's percentage share. It allocates daily income, expenses, and net realized and unrealized gain or loss. It tracks data for aggregate year-end determinations for accounting and tax purposes. The calculations must be performed quickly and accurately. Often this must occur within an hour and a half after the market closes. This necessitates the use of a computer. State Street Bank & Trust Co. and Signature both act as custodians and accounting agents for multi-tiered partnership fund financial services. State Street negotiated with Signature for a license. When negotiations broke down, State Street filed a declaratory judgment action in the United States District Court for the District of Massachusetts. The action asserted invalidity, unenforceability, and noninfringement of the patent. State Street moved for partial summary judgment on the ground that the patent claims failed to claim statutory subject matter. The district court granted the motion. Signature appealed to the United States Court of Appeals for the Federal Circuit.
View caseAn encumbrance such as a recorded easement or lien creates reasonable doubt about whether the seller can deliver clear title. A buyer may refuse to close if the encumbrance impairs marketability unless the contract permits cure or the buyer accepts insurable title instead.
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Yes. The covenant promises that title is free from all liens and burdens at conveyance. A recorded party-wall agreement or similar encumbrance breaches the covenant even if the buyer had constructive notice, because the warranty is absolute and runs with the land.
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Under the modern approach, a specific devisee takes the property subject to any existing mortgage or lien unless the will expressly directs exoneration of that particular debt from other estate assets. A general direction to pay just debts is insufficient to shift the burden.
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…to sell the property with the respondent's consent and to receive half the proceeds from such a sale, the right to place an encumbrance on the property with the respondent's consent, and the right to block respondent from selling or encumbering the property unilaterally. IV We turn now to the federal question of…