Encumbrance
Any claim, lien, charge, or restriction on a property that may limit its use, transfer, or value.
Encumbrances fall into two categories: financial encumbrances (liens) and non-financial encumbrances (restrictions on use or ownership). Financial encumbrances include mortgages, judgment liens, mechanics' liens, property tax liens, and HOA assessment liens. Non-financial encumbrances include easements (rights of others to use part of the property), covenants, conditions and restrictions (CC&Rs), and building code violations.
Encumbrances are disclosed in the title commitment and are excepted from title insurance coverage — the title insurer will not pay claims arising from disclosed encumbrances. Buyers must evaluate each disclosed encumbrance to determine whether it affects their intended use of the property. Some encumbrances (a utility easement through undeveloped land) are immaterial; others (a recorded covenant prohibiting commercial use of commercially zoned land) may make a property unfit for the buyer's purpose. Document intelligence can extract and summarize all encumbrances from a title commitment with page references to each exception.
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Indemnification
A contractual obligation where one party agrees to compensate the other for specified losses or damages.
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A legally enforceable agreement between two or more parties that creates mutual obligations.
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