BoeFly Logo

BoeFly Transactions

Previous Issues
Issue 30: Loan Sale Premiums Hold Steady in November

Issue 29: Proper Risk Management Protection and Credit Worthiness

Issue 28: BoeFly Helps Veterans With Disabilities Connect With Lenders to Obtain Small Business Loans

Issue 27: Loan Sale Premiums Level off in October

Issue 26: SBA Secondary Market changes - Warranty Period and Premiums on New Larger Loans

Issue 25: BoeFly Surpasses the $1 Billion Transaction Mark

Issue 24: Loan Sale Premiums Continue Climb in September

Issue 23: Robert Tannenhauser, CEO of BoeFly, Interviewed by Michael McKee on Bloomberg Radio

Issue 22: Lender Optimism is up While Anxiously Awaiting the Small Business Jobs Bill

Issue 21: Loan Sale Premiums Blast to Record Highs in August

Issue 20: Title Insurance- the Lender's Perspective

Issue 19: Condemnation and Mortgage Lender's Rights

Issue 18: Long-Term Deals Continue Record Climb; Short-Term Deals Fade

Issue 17: Congressman Walt Minnick (D-Idaho) Gets It

Issue 16: Deeds and Forms of Ownership

Issue 15: SBA Loan Sale Premiums Hit Record High in June

Issue 14: What You Need to Know About Property Insurance

Issue 13: SBA Fixed Interest Rate Loans are an Important Product to have at the Ready

Issue 12: 504 Guaranteed Pool Program Summary and Survey Results

Issue 11: Loan Sale Premiums Surge to Record Highs in May

Issue 10: Environmental Risk for Lending Opportunities

Issue 9: How To Take Advantage of the First Lien Position 504 Loan Pool Guarantee Program

Issue 8: Investors Remain for SBA Loans

Issue 7: Retirement Funds for an Equity Injection - Selecting the Right Plan Provider

Issue 6: Why Outsourcing Environmental Risk Management makes Cents for Lenders

Issue 5: Loan Monitoring: Comfort in a Crisis

Issue 4: BoeFly Case Study: The economics of selling SBA guaranteed loans

Issue 3: BoeFly Lender Survey Results Q1 2010

Issue 2: Loan Sale Premiums Rally in Q1

Issue 1: The Importance of Efficiency in Secondary Markets

CONDEMNATION AND MORTGAGE LENDERS’ RIGHTS

By BoeFly Member: Michael A. Nayor


Share this article:
Bookmark and Share


EMINENT DOMAIN
Over the years the definition of public good has been significantly expanded. A very well known Supreme Court case in 2005 affirmed the right of the city of New London, Connecticut to "take" certain property and transfer it for a dollar a year to a private developer with the expectation of eventually generating increased municipal revenues. Even though there was strong negative public reaction to this decision, including some states restricting their powers of eminent domain, no property is immune to the potential actions of a state or municipal condemnation of property. Obviously, this may have significant consequences for mortgage lenders.


CONDEMNATION
Condemnation is the actual act or exercise of the power of eminent domain, and must be exercised with the payment of "due" or "just" compensation. Other than this very basic requirement, state laws run the gamut with respect to procedures and rights of parties. Mortgage lenders must be aware of these provisions in order to protect their interests and participate in the condemnation process to the fullest extent possible.


RIGHTS OF PARTIES
Some states view the parties to a condemnation action as the owner as well as all persons having an interest in the property, while other states exclude those with nothing more than a security interest. The manner in which a mortgage lender is viewed by a state will determine such matters as whether it will receive notice and to what extent it can participate in the condemnation proceedings. Treatment can vary from full participation to total exclusion, with a mortgage lender having only a remedy against the mortgagor.


PROTECTIVE MORTGAGE CLAUSES
An owner/borrower should always be required to promptly give notice to the lender, and to take all appropriate action to collect the award. The borrower should be restricted from accepting an award without the written consent of the lender. The lender should be allowed to step into the shoes of the borrower and settle with the taking authority if the lender feels that the borrower is not handling the proceeding satisfactorily.

Condemnation clauses should also address matters such as a partial taking of property and how much of the award should be used to partially pay off the mortgage. Many clauses allow the lender alone to make this determination. It is also important to describe how prepayment penalties and other adjustments should be handled.


CONCLUSION
With strong protective condemnation clauses in a mortgage, a lender may be able to protect its interests even in the face of contrary state provisions or lack of provisions. These provisions will define those private contractual matters between borrower and lender that should survive a condemnation proceeding, barring anything contrary in the law. Strong condemnation clauses may never be needed but they will afford a lender with the best protection possible in case the unexpected becomes a reality.