Unencumbered property

An unencumbered property refers to real estate free of loans and pledges and is not subject to any claims by creditors.

The term unencumbered also applies to real estate that has been fully repaid and the owner no longer has restrictions on his ownership and has obtained full rights to the property:

1. Right of use
2. Right of exclusion
3. Right of transfer

In practice, an unencumbered property means that there are no debts on it, therefore the creditors have no claims for it.

To better understand what an unloaded real estate is, it is important to explain what burdens are not subject:

financial charges:

• Mortgage loans are a burden when the property owner sets it as collateral for the loan.
• Tax pledges are imposed by tax institutions if the owner does not comply with the obligation to pay property taxes.
• Contractor's pledges, when the property owner commissions the repair or repair contract and will not pay for it, then the contractor has the right to impose a pledge on the property

non-financial charges:

• Easements when third parties have the right to use the property without being the legal owner.

Sale of unencumbered property

The sale of real estate with zero indebtedness is definitely easier than the real estate burdened. The property is free from encumbrances, has no debts attached to it and is the full property of the person who owns it.

In the situation where the owner would like to sell his property, he sets the amount for which he sells his property, and then the buyer approves the sale with the buyer.

In the case of a chargeable property, the sale is more complicated and takes longer, because the sale must also be approved by any entity that has any claim to the property. If the house was the subject of collateral for the loan, then the bank may impose requirements as to the sale price to cover the amount of the debt incurred, thereby effectively paying it off as part of the sale of the property .

Examples of Unencumbered property

• A property owned outright (i.e. without a mortgage) is an example of an unencumbered property.
• A property that has been paid off in full and no longer has a lien against it is an example of an unencumbered property.
• A property that has no liens or claims against it and is owned by a single individual is an example of an unencumbered property.
• A property owned by a trust or other legal entity that does not have any outstanding debts or claims against it is an example of an unencumbered property.
• A property that was inherited and has no outstanding debts or claims against it is an example of an unencumbered property.

Advantages of Unencumbered property

A property that is unencumbered offers a number of benefits, including:

• Increased marketability: Unencumbered property is more attractive to buyers, as it is free of any existing mortgages or liens. This makes it easier to complete a sale and helps to ensure that the sale will go through as quickly as possible.
• Increased borrowing potential: An unencumbered property can be used as collateral for loans, which will help to increase borrowing potential.
• Lower risk: Without any existing mortgages or liens, the risk of defaulting on a loan is greatly reduced, and the property is protected from potential creditors.
• Higher return on investment: An unencumbered property can be sold at a higher price, resulting in a greater return on investment.

Limitations of Unencumbered property

An unencumbered property is a real estate free from any financial obligations or pledges, making it a desirable asset for many buyers. However, there are a few limitations of an unencumbered property which should be taken into consideration before making a purchase:

• The property is typically more expensive than an encumbered property, as it is perceived to be of higher value.
• The title to the property is not guaranteed to be free of other claims, such as liens from the previous owner’s creditors.
• The unencumbered property may be subject to local zoning laws and restrictions, which could limit the use of the property.
• Finding an unencumbered property may be difficult depending on the market, as many properties are encumbered with mortgages, liens, or other financial obligations.

Other approaches related to Unencumbered property

An unencumbered property is one that is free from any loans, pledges, or claims by creditors. There are a few other approaches related to unencumbered property that can help to ensure it remains clear of any claims. These approaches include:

• Purchasing an insurance policy: An insurance policy can provide financial compensation in the event that a claim is made against the property.
• Establishing a trust: Establishing a trust can help to protect the property from potential creditors, as the trust holds the title to the property.
• Title search: Conducting a title search to ensure that the property is free of any liens or judgments can help to ensure that the property is unencumbered.
• Determining ownership: Determining who owns the property can help to determine if there are any claims against it.

In conclusion, an unencumbered property is one that is free from any loans, pledges, or claims by creditors. There are a few other approaches related to unencumbered property, such as purchasing an insurance policy, establishing a trust, conducting a title search, and determining ownership, that can help to ensure it remains free of any claims.

Footnotes

Unencumbered property — recommended articles

Collateral assignment — Pledged asset — Vendor take-back mortgage — Clear title — Absolute assignment — True lease — Fixed and floating charge — Ijarah — Distribution In Kind

References

• Brown R.J. (2004), Risk and Private Real Estate Investments, The Journal of Real Estate Portfolio Management Vol. 10, No. 2, pp. 113-128
• Cook M.L. (2016), Bankruptcy Litigation Manual, Wolters Kluwer, New York
• Jaffe A.J. Louziotis D. Jr. (1996), Property Rights and Economic Efficiency: A Survey of Institutional Factors, Journal of Real Estate Literature, 4, 137-159
• Lux, N. (2012), Assessing Real Estate Risk - Applied Models, Concepts, Methods, Euromoney Institutional Investor PLC, London
• Schneider P.J., Pinheiro B.M. (2016), Erisa: A Comprehensive Guide, Wolters Kluwer, New York
• Snajberg O. (2015),Valuation of Real Estate with Easement, Procedia Economics and Finance Vol. 25, Pages 420-427, Prague

Author: Izabela Wilczyńska