Contract Glossary

Encumbrance

Definition

A claim, lien, or restriction on property that limits the owner's ability to transfer it or use it freely. In plain English: it's baggage attached to an asset that a new buyer would inherit.

In Practice

Before you buy property or take on an asset as collateral, check for encumbrances. A house might have a mortgage lien, an unpaid tax lien, or an easement giving the neighbor access across the yard. If you don't discover these before closing, you're stuck with them.