Encumbrance

Definition

Legal claims and rights attached to an asset that survive a sale.

Why It Matters

Every purchase agreement promises the assets arrive free and clear of encumbrances, and the word covers more than debt. A lien is one kind. So is an easement across the yard the trucks park in, a lease assignment the landlord can refuse, a license that does not transfer, and a judgment nobody mentioned. Each one is a right somebody else holds over something you are paying for. The search that finds them is cheap and the surprise after closing is not, because an encumbrance you did not know about is still yours the day you own the assets.

In numbers: A $40 lien search turning up a $22,000 equipment loan is the difference between the seller paying it at closing and you inheriting it.