What term refers to anything that affects or limits the fee simple title to a property?

The correct choice is encumbrance because this term specifically describes any claim, lien, or restriction on a property that may limit the owner's rights or reduce the value of the property. Encumbrances can take various forms, such as easements, mortgages, or property tax liens, and they can affect the transferability or use of the property.

Understanding the concept of encumbrance is crucial for real estate transactions as it impacts both the buyer’s potential ownership rights and the seller’s ability to transfer clear title. For example, if a property has a mortgage, the buyer may need to address that lien before fully taking ownership. This highlights the importance of assessing any encumbrances before finalizing a sale, enabling all parties to understand the property's full legal status.

The other terms provided do not align with this definition. Equity refers to the value of ownership in a property after accounting for any debts or liabilities associated with it. Escrow involves the holding of funds or documents by a third party during the transaction process and does not inherently limit title. Title insurance protects against losses due to defects in title but does not affect the title itself.