Encumbrances & Liens
Also called: Property Encumbrance · Lien Clause
An encumbrance or lien is a legal claim against a property — such as an unpaid mortgage, tax debt, or court judgment — that can restrict the owner's ability to sell or transfer it free and clear. A property contract needs to identify and resolve these before the transaction closes.
In more detail
A property can be encumbered without the current possessor being aware of it — liens attach to the property itself, not just to the person who created them, which is why they can surface unexpectedly during a sale even when the current seller acted in good faith.
Common categories include mortgage liens, tax liens for unpaid property tax, mechanic's or contractor's liens for unpaid construction work, and liens arising from unresolved court judgments against a prior owner.
The contract should require the seller to disclose known encumbrances and to clear them (or escrow funds to clear them) before or at closing — an undisclosed lien is one of the most common post-closing property disputes.
A property has an unpaid contractor's lien from renovation work the previous owner never paid for. Until that lien is cleared, the contractor could have a legal claim against the property itself — regardless of who currently owns it.
What our lawyers check
- Whether all known encumbrances are disclosed in the contract
- How the contract handles clearing encumbrances before or at closing
- Whether funds are escrowed to cover any disputed or pending liens
- What recourse exists if an undisclosed encumbrance surfaces post-closing
Contracts where this clause matters
Related terms
This definition is general information about commercial contracting practice, not legal advice. How a clause operates depends on the specific wording of your agreement and the law that governs it. For advice on your contract, have it reviewed by a lawyer.
All glossary terms