Welcome back to part two of our series on how to “talk title.” If you missed it, go back and read part one, where we covered several foundational terms and concepts, including the difference between title and deed, title search and examination terms, and understanding the title commitment. In this installment, we’ll dive deeper into all of the terms associated with liens and encumbrances; surveys, boundaries, and property rights; the title insurance policy itself; and closing and recording. 

By breaking down these terms, we hope that whether you’re a buyer, seller, agent, or attorney, you can walk away with a better understanding of the process and navigate your next transaction more confidently. 

Encumbrances and liens

An encumbrance is any claim, liability, or restriction that affects a property’s title or limits the owner’s ability to transfer the property freely. Encumbrances can include financial claims, such as liens, as well as non-financial restrictions like utility easements, HOA rules, or a tenant’s lease. Even though some encumbrances do not stop a property from being sold, they can still affect the owner’s rights to the property.

Liens

A lien is a legal claim a creditor places on a property to secure payment of a debt owed by the property owner. It gives the creditor the right to seek repayment using the property if the owner does not pay what they owe. Until the debt is paid and the lien is released, it remains attached to the property’s title, making it harder for the owner to sell or refinance the property. 

Below, we’ve broken down the types of liens into two categories — voluntary and involuntary. A voluntary lien is a claim placed on a property with the owner’s consent, typically used as collateral to secure a loan. Involuntary liens are claims placed on a property by a third party, usually a creditor or government agency, due to unpaid debts or legal obligations. 

Voluntary liens

Mortgage (deed of trust)

A mortgage, also called a deed of trust, is a voluntary lien that is created when a borrower agrees to take out a loan to buy a home. Having a mortgage does not stop the homeowner from selling or refinancing the property, but the loan must be paid off as part of that transaction. Since the property is used as collateral for the loan, the lender has the legal right to start foreclosure if the borrower does not repay the loan. 

Involuntary liens

When an involuntary lien is recorded, it attaches to the home’s title. Because the lien is part of the property’s title record, it can make it difficult for the homeowner to sell or refinance the home until the debt is resolved. In some cases, the lien holder may even be able to force the property into foreclosure. Most liens must be paid or removed because buyers and lenders usually require a clear title at closing.

Judgment lien

This is a court-ordered claim placed on a property by a creditor following a lawsuit. If the debtor fails to satisfy a court-ordered financial obligation, the judgment lien attaches to the property until the debt is paid or dismissed. 

Mechanic’s lien

This type of lien is filed by contractors, subcontractors, laborers, or other vendors who have not been paid for the labor, services, or materials provided to improve a property. By filing this lien, the party who performed the work gains a legal interest in the property as security for payment.

Tax lien

A tax lien is a claim placed on a property by a government authority when the property owner fails to pay required taxes. This most commonly involves unpaid property taxes, but it can also include federal or state taxes. Tax liens generally have priority over most other liens.

HOA lien

An HOA lien is a claim recorded by a homeowners association when a property owner fails to pay required association dues, assessments, or fees. Because the owner agreed to these obligations, the association has the right to place a lien on the property to secure payment.

Surveys, boundaries, & property rights

These terms relate to how property is measured, where the legal boundaries are, and what rights other people may have to use parts of the land. Many of these issues may not be obvious during a walkthrough of the home, but can still impact the title of a property. 

Survey

A survey is a detailed map of a property created by a licensed surveyor. It shows the exact boundaries of the land, the location of structures such as the house, garage, or fence, and other features like driveways or utility lines.

Boundary line

A boundary line is the legal line that marks where one property ends and another begins. These lines are defined in the property’s legal description and are confirmed by a survey. 

Encroachment

An encroachment occurs when a structure or improvement from one property extends onto a neighboring property without permission. This can include things like a fence, driveway, shed, or even part of a house crossing over the property line. 

Easement

An easement is a legal right that allows someone else to use part of a property for a specific purpose, even though they do not own the land. The property owner still owns the land but must allow the permitted use. An example of this would be a utility company having an easement to access power, water, or sewer lines.

Right-of-Way

A right-of-way is a type of easement that gives someone the legal right to travel across another person’s land. It is commonly used for roads, shared driveways, sidewalks, or access routes. For example, if two homes share a driveway, the property owners would have the legal right-of-way to drive across their neighbor’s land to reach the street.

Setback

A setback is a local zoning rule that requires buildings or structures to be placed a certain distance from property lines, streets, or other structures. Setbacks help ensure proper spacing between buildings for safety, access, and community planning. 

Title Insurance

Title insurance is a type of insurance that protects property buyers and lenders from financial losses caused by problems with the property’s title. Unlike many other types of insurance, title insurance protects against past events rather than future risks. Common issues that title insurance covers include:

• Unknown heirs: A previously unknown family member of a former owner may appear and claim legal ownership rights to the property.

• Forgery: A past deed or document may have been forged, making the transfer of ownership invalid.
• Recording errors: Mistakes in public records, such as incorrect filings or clerical errors.
• Undisclosed liens: A previous owner may have left unpaid debts that were not discovered during the title search.

Owner’s Policy 

An owner’s title insurance policy protects the homebuyer. It ensures the buyer’s ownership rights are protected if a title problem appears after the purchase.

Lender’s Policy

A lender’s title insurance policy protects the mortgage lender’s financial interest in the property. Most lenders require this policy when issuing a home loan.

One-time premium

Title insurance is usually paid as a one-time premium at closing rather than through monthly or yearly payments. The coverage generally lasts for as long as the owner or lender has an interest in the property.

Closing & Recording

These terms describe the final stage of a real estate transaction, when ownership of the property officially transfers from the seller to the buyer.

Closing or settlement 

Closing, also called settlement, is the final step in a real estate transaction. During closing, the buyer and seller sign the necessary documents, funds are transferred, and ownership of the property is officially transferred to the buyer.

ALTA Settlement Statement/Closing Disclosure

The ALTA Settlement Statement or Closing Disclosure is a document that outlines all of the financial details of the transaction. It shows the purchase price, loan amount, closing costs, taxes, fees, and the final amount the buyer must bring to closing.

Funding

Funding occurs when the lender sends the loan money to complete the purchase. Once the funds are received and all documents are signed, the transaction can move to the final step.

Recording

Recording is the process of filing the new deed and mortgage documents with the local government office. Recording officially updates the public records to show the new owner of the property.

Gap period

The gap period is the short time between when the closing documents are signed and when they are officially recorded in public records. During this time, title companies take steps to ensure no new liens or claims appear before the recording is completed.

Make your transaction easier by knowing these terms

Having a clear understanding of title terms makes the home-buying or selling process less stressful and helps everyone communicate more clearly. Real estate professionals who can explain title concepts in plain language provide real value, helping clients feel informed and secure. 

It’s also important to work with a title company you can trust. Title companies do more than handle paperwork — they act as risk managers, ensuring that ownership rights are protected and that problems are addressed and resolved from start to finish. If you ever have questions about title issues or want guidance on explaining them to clients, reach out to us at Landtrust Title.