What About Mortgages And Liens?

(A) – Payment
Virtually every mortgage will provide that the mortgagee (i.e., the bank or lending institution) is entitled to the entire condemnation award to be applied against the mortgage. However, in partial takings (i.e., where the government takes less than the whole property), the mortgagee, upon request, will often waive this right or will agree to share the award with certain conditions. Of course, even where the mortgagee takes the entire award, it reduces the mortgage so the fee owner realizes a benefit.

(B) – Mortgage Interest
It is a peculiar and little known concept that unless there is a specific provision in the mortgage to the contrary, upon a taking, as a matter of law, the interest rate on the mortgage security is deemed changed to the rate paid by the condemning authority. For example, if the mortgage rate is 11% and the State takes the property, the rate to which the bank is entitled on the mortgage after vesting is 9%. If there is a prepayment penalty, the condemnor may be liable for such penalties. [Interest on a mortgage is actually somewhat more complicated. The interest rate on the mortgage (i.e., the security) is reduced, but the bank may still, at its option, choose to sue on the mortgage note — thereby preserving its higher interest rate.] See EDPL §702.

(C) – Partial Take/Mortgage
Where only a part of the property is acquired, and there is a mortgage in existence which covers that part of the property not acquired or where there is a blanket mortgage covering property not a part of the condemned premises, payment should be continued under the terms of the mortgage so as to avoid a default in the mortgage as to that part of the property not condemned.

If I Am Notified Or Become Aware Of A Condemnation, What Should I Do?

Every taking, whether it is by the State, County, City, Town, Community Development Agency, etc. is normally preceded by a substantial volume of paperwork or notice from the condemning authority. You or your client will receive in the mail or be served by hand with various notices of the impending take or the proposed project. The property owner may even be visited by a representative of the condemning authority.

DO NOT IGNORE THESE NOTICES! AS SOON AS YOU BECOME AWARE OF A CONDEMNATION, YOU SHOULD CONTACT CONDEMNATION COUNSEL.

It is important that counsel get involved early in the process since claim filing and time requirements can be quite strict. Failure to timely file your claim in the proper form could result in the loss of your right to additional compensation. Under no circumstances should any documents be signed by the property owner without first conferring with counsel.

UNDER NO CIRCUMSTANCES should you wait for the actual construction to begin before seeking counsel. By the time construction begins on any government project, it is usually long after the property has been legally taken and frequently far too late to preserve all your rights to just compensation.

If The Property Is Under A Contract Of Sale At The Time Of Vesting, Who Is Entitled To The Award?

Where a property (or a portion of the property) is condemned when it is under contract, there are a number of different possible scenarios. Assuming that the contract does not specifically address the situation of condemnation – in which case the contract totally controls – the result would be governed by the General Obligations Law (GOL) which provides that where a property is under contract and the entire property or a substantial portion of the property is taken and performance of the contract becomes impossible, the contract is deemed cancelled and the purchaser is entitled to the return of the down payment and the seller is entitled to make the condemnation claim. Alternatively, to the extent that the seller recovers in condemnation, the purchaser would have a claim or lien against the award to the extent of the down payment.

A more complicated situation arises where the taking is partial. For example, where only a small piece of land is taken for a road widening while the property is in contract. Here, again, assuming the contract does not specifically address it, the GOL applies and provides for a proportionate reduction in the purchase price to reflect a reduction in the amount of property which now can no longer be conveyed at closing. Of course, this is simply stated, but hard to apply since the taking of a small portion of a property can have a disproportionate effect on the remainder property and the purchaser may not be willing to pay an amount reduced by a mathematical proportion of the taking to a whole. Therefore, it is always good practice in a contract where there is a possibility of condemnation occurring between a contract date and closing to provide for a specific arrangement in the event of a taking so that any disputes can be avoided.

Can I Stay On As A Tenant?

It is typical in most condemnations that the property owner (if they are an occupant or lessee) will continue in possession of the property even after the State (or any other governmental entity) formally takes title to the property. In these circumstances, the property owner’s status is converted to that of a tenant. In such circumstances, whoever is occupying the property now becomes the tenant of the state and is responsible for a reasonable use and occupancy charge. The State will initially set this charge, but the amount of the charge can be challenged. It is not unusual for the property owner and/or prior tenant to stay on as the State’s tenant for months and in some cases even years.

Keep in mind that to the extent that a rental is not paid for this period of time between the formal vesting date and the date of the award, the State can claim a deduction from the total award equivalent to the accumulated use and occupancy charges due. Therefore, it is always good practice to challenge the use and occupancy charge early on so that it does not become a major deduction from either the ultimate award (if after trial) or a significant factor in the overall settlement.

Can I Get Relocation Expenses?

The property owner (including tenants) – be it residential or commercial property – is entitled to certain reimbursement and assistance to accomplish relocation. For a State taking, the relocation expenses can include:

(A) – Moving Expenses

(i) Professional Move – is based on the Agency obtaining two moving estimates. This is accomplished by doing an inventory of the claimant’s personal property which will be moved. Estimates must be obtained, and then confirm the amount of funds approved for the actual move. The State approves the lower of the two estimates that are obtained. The claimant will be provided with a copy of both estimates. The claimant may use any mover they want, but the State will not pay more than the lowest of the two estimates.

(ii) A Self Move – is based on the lowest of the two professional estimates with an additional deduction of 10%. However, the State will compensate in some cases for a foreman that is taken away from his normal duties to perform as an overseer of the move.

(B) – Storage

For necessary storage, the Department will reimburse the fees up to twelve (12) months. This must be approved in advance.

(C) – Tangible Loss of Personal Property

Actual direct losses of tangible personal property as a result of moving or discontinuing a business but not to exceed an amount equal to the reasonable expenses that would have been required to relocate such property.

(D)- Reestablishment Expenses up to $10,000

These are actual reasonable expenses necessary to reestablish a business at its new site. This is a “spend” to “get” benefit. Actual paid bills must be submitted. The expenditure is to make the business “whole” again. The business is to be placed back in a functional operational condition as prior to the move.

(E) – “Buy Back” or Salvage Value

If for any reason the relocatee wishes to take a trade fixture with them to the new location, they may purchase the item back from the Department for its salvage value. This is the probable sale price of an item, if offered for sale on the condition that it will be removed from the property at the buyer’s expense.

(F) – In Lieu of Moving Expenses

Any displaced business eligible for moving payment may elect to accept a fixed payment in an amount to be determined according to criteria established by the Department in lieu of moving expenses. Such payment will be determined by the last two Federal Income Tax Returns. Such payment shall not be less than $1,000 nor more than $20,000.

(G)- Searching Fees

The State will pay up to $1,000.00 searching fees. Again, this benefit is a “spend” to “get.” The claimant must document the dates, time, addresses and real estate agents that were seen and contacted for the search. However, the State takes the position that it will not pay real estate brokerage or reimburse for the security deposit required at the new site.

Also keep in mind that the extent of compensable relocation expenses varies depending on who is taking the property, – e.g., State or Federal or federally subsidized. It can also vary on the Agency of government which does the taking.

Can I Recover The Costs Of Litigation?

Where the condemnation award is “substantially in excess of the amount of the condemnor’s proof,” the court, “in its discretion,” may award as additional compensation the actual and necessary costs, disbursements and expenses, including reasonable attorney, appraiser and engineer fees actually incurred. EDPL §701 and §702. An application for such fees can only be made at the end of the case. In settlement negotiations, the right to reimbursement is often an important issue for negotiation.