Oklahoma law provides that no insurer shall issue, permit or cause to be issued, either directly or by an agent, a binder, commitment or policy of title insurance until either the title insurance company or its authorized agent shall have obtained an opinion of title by an attorney licensed to practice law in the State of Oklahoma based upon an examination of a duly certified abstract of title prepared by a bonded and licensed abstractor. The purpose of an attorney’s title opinion is to determine whether title to the subject property is marketable. “A marketable title is one free from apparent defects, grave doubts and litigious uncertainty, and consists of both legal and equitable title fairly deducible of record.”
Among those items denoted on the attorney’s title opinion are a number of interests that burden the title to real property known as encumbrances. These interests are held by persons other than the owner having the right to actual possession of the real estate. There are two basic kinds of encumbrances. The first is encumbrances relating to the physical use of the property, which may give others limited rights to use, such as easements, licenses, water rights, and encroachments, or which may limit the rights of the owner to make unrestricted use of the property, such as deed restrictions.
The other type of encumbrance is an encumbrance on the title, rather than on the physical right to use the property. Encumbrances on title affect the value of the property, and include mortgages, liens, tax liens, and judgments. These encumbrances may give rise to a right of the holder of the encumbrance to sell the property to satisfy the obligation secured by the encumbrance. Title insurance will normally except from coverage those encumbrances that exist of record, by listing the use encumbrance as an exception on Schedule B of the policy, or by making a requirement for the release of known encumbrances on title.
An attorney may find encumbrances during the examination of the abstract of title. A surveyor will also denote encumbrances on the ALTA/ACSM survey of the real property. In either circumstance, the encumbrances will be noted as exceptions on the title commitment.
a. Physical Encumbrances
Deed Restrictions: Deed restrictions, or restrictive covenants, are enforceable promises limiting the use of land which arise from private agreement between landowners. A grantor may place restrictions in the deed upon the right to use the property conveyed thereby. These restrictions must be reasonable and not contrary to public policy. Deed restrictions, once established, normally run with the land and are limitations upon the use of all future grantees.
Restrictions are most frequently encountered in the development of subdivisions in which the limitation is for the benefit of all the landowners. The restrictions may be recorded separately and incorporated into each deed by reference, or may be set out in their entirety in the deed itself. Typical restrictions deal with the minimum size of the house, type of building material that may be used, and exclusion of commercial use. Well-formulated restrictions have a beneficial and stabilizing effect upon property values. Homeowners are protected against forbidden uses. Violations of restrictions can be enjoined through a court action brought by any party for whose benefit the restrictions were imposed.
Deed restrictions may be given an express lifetime by limiting their duration in the deed. Otherwise, such restrictions will continue until terminated by unanimous agreement between or among affected parties, and by merger in which one landowner acquires the interest of all persons owning subject to the restriction. A court will also refuse to enforce restrictions that have become ineffective due to a material change in the restricted area.
Easements: An easement is a right to make limited use of property owned by another. An easement does not create a possessory interest in land; rather, it is a physical encumbrance upon the land. The owner of the easement has an interest in the land; however, it is not inconsistent with title and possession in the owner entitled to possession. The most common easement is a right of way; easements generally include the right to enter upon and use the property in the manner contemplated by the parties at the time the easement was created.
There are two types of easements: easements appurtenant and easements in gross. An easement appurtenant attaches to and runs with ownership of both the land subject to the easement, and the land which is benefited by the easement. An easement in gross belongs to its owner personally, and does not attach itself as a benefit to the ownership of any other land. Although the encumbered land will be burdened in the hands of successive owners, the easement in gross will remain the sole property of the person for whose benefit the easement was created.
Easements may be created by conveyance or by operation of law. Easements are normally created by written instruments, since they are interests in real estate and are subject to the Statute of Frauds. An easement may be created in favor of the grantee of a deed, which may burden land owned by the grantor; also, a grantor may reserve an easement at the time of granting the land, which may either benefit the grantor’s retained land (an easement appurtenant), or the grantor personally (an easement in gross).
License: A license is not a right or an estate in land. It is a personal privilege for a non-owner to make use of land, which use would otherwise constitute a trespass. Unlike an easement, a license is revocable by the granting party at any time. A license may be oral or in writing, and it may or may not be based upon a contract. Examples of a license would be the privilege to hunt on the property of a neighbor or the privilege to park an automobile in a parking lot.
Encroachments: An encroachment is the wrongful extension of a structure or improvement into the property of another. Buildings, fences and other structures may encroach onto adjacent land. Most encroachments will be revealed by an accurate land survey. The party whose land was encroached upon may or may not have the ability to have the encroachment removed, depending on the circumstances.
If an encroachment has been present for the statutory period (15 years), under legally appropriate conditions, the owner of the encroaching structure may assert a right to the affected land on the basis of adverse possession. If the owner of such structure cannot claim adverse possession, the party encroached upon may bring an action to have the encroachment removed on the basis of trespass, or to recover damages for the devaluation of the property due to the encroachment.
b. Encumbrances on Title – Liens
A lien is a right given to a creditor to have a debt or charge secured by the real or personal property belonging to a debtor. If the debt or charge is unpaid, the property can be sold to satisfy the creditor’s claim. Liens arise from a debt and can be created by the parties, as in a mortgage, or by operation of law, as in a judgment lien. A lien may be a general lien, affecting all of the debtor’s nonexempt property, as in a judgment lien. It can, alternatively, be a special lien, affecting only a specific property, as when a mortgage is given on one piece of property. The following are examples of various liens and encumbrances on title:
Mortgages: The mortgage is the most frequently encountered encumbrance against real estate. A mortgage is a voluntary special lien created by the agreement of the property owner as security for money owed by the owner to a creditor. The real property serves as security for the repayment of the obligation.
Property Taxes: Real property (ad valorem) taxes are assessed according to the value of the nonexempt property by each county. The determination of the property value is the duty of the county assessor, or duly elected county officer. The taxing authority has a statutory lien for unpaid taxes once they become delinquent.
Special Assessments: Special assessments are taxes or levies customarily imposed against only those specific parcels of real property that will benefit for a proposed public improvement. Whereas ad valorem property taxes are levied for the support of general functions of government, special assessments cover the cost of specific local improvements, such as streets, sewers, irrigation and drainage. The landowner usually has the option of paying special assessments in installments over several years with interest, or paying the balance in full at the time of assessment.
Mechanics and Materialmen’s Liens: Mechanic’s and materialmen’s liens are statutory liens in favor of those who furnish labor or materials for the erection, alteration or repair of buildings, improvements or structures on real property. These liens serve as security for the payment of charges for either labor or materials expended on the land. Mechanic’s and materialmen’s liens are superior to all liens which attach subsequent to the commencement of the labor, or the first provision of materials by the party claiming the lien. The lien is also superior to any lien of which the laborer or materialman had no notice and which was unrecorded at the time the work was commenced, or the first materials were provided by the lien holder. Failure to pursue these liens within one year from the filing of the lien will terminate the lien.
Miscellaneous Tax Liens: Failure to pay other taxes, such as state and federal income, estate taxes, and corporate franchise taxes, generally causes a lien to be placed on all real property owned by the nonpaying party. At the death of a decedent, a potential lien arises on all property owned by the decedent. Clear title to property owned by the estate cannot be given until the Oklahoma Tax Commission issues a release of lien or an Order exempting the estate from payment of estate taxes.
Judgment Liens: A judgment is a determination by a court of the rights of parties to litigation. A judgment awarding money to a party to the litigation becomes a lien on all nonexempt property owned by the judgment debtor in the county in which the judgment was entered. The judgment creditor may file the lien in any other county in which the judgment debtor owns property, and the lien will attach to all nonexempt property owned by the judgment debtor in that county. If the judgment is not satisfied by payment of the sum due, the creditor may sue to have the property sold to satisfy the judgment debt.