encumbrance

Encumbrance

1. In accounting, an amount of money that one is required to spend on a stated thing in the future. For example, a portion of the proceeds of a sale may be encumbered to pay for the cost of goods sold.

2. In real estate, any claim of ownership that may cloud the legitimacy of a sale. See also: Bad title.

Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

encumbrance

1. A liability on real property. For example, a mortgage encumbers title to real estate because the lender has an interest in the property. Compare unencumbered.

2. A commitment within an organization to use funds for a specific purpose. Thus, a college may encumber funds for later payment to cover expenses associated with a faculty member's trip to recruit new professors.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.