The statute governing proceedings by local municipalities provide that interest on the award shall be at the rate of six (6%) percent per annum from the date of title vesting to the date the award is ready to be paid. General Municipal Law, §3(A). The State currently pays interest at nine (9%) percent per annum (see CPLR §5004), but this interest rate may be reduced by the State depositing the advance payment with the Comptroller pursuant to EDPL §514. Under certain provisions of the EDPL, interest can be totally suspended or substantially reduced if the claimant fails to take the necessary steps to file its claim to process the award in a timely fashion. See EDPL §304 and §514.
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.
(A) – Pre-Vesting Offer
The government is obligated under the applicable statutes to make a good faith effort to negotiate prior to the vesting of title. EDPL Art. 3. Only in rare circumstances will the property owner find the offer acceptable. In most cases, the government must therefore acquire title by condemnation procedure. Even with an acceptable offer, a government will often condemn the property rather than buy it because title acquired by condemnation is the purest title — clearing any possible encumbrances.
(B) – Advance Payment/Amount
Upon the taking or shortly before, the owner of property is entitled to an advance payment equal to one-hundred percent of the condemnor’s “highest approved appraisal” of the property. All mortgages, judgments, liens and encumbrances must first be satisfied from this payment, with the balance, if any, payable to the property owner. EDPL §303.
A property owner can take the advance payment and still make a claim for further damages.
(C) – Time
The advance payment is not discretionary and should be made immediately upon or immediately before vesting of title. However, as a practical matter, payment generally takes a number of months. Since the taking authority requires extensive documentation and tax clearances to confirm that there are no pre-existing liens, etc., it can often take six months or longer before the advance payment is released. See EDPL §403. Note that interest must be paid on the advance payment from date of vesting to date of payment, but keep in mind that failure to properly prosecute the claim could result in suspension of interest.
The appraisers, engineers and/or inspectors for the condemning authority have the right to inspect property (even before the formal taking) for the purpose of gathering information upon which to base an appraisal. This inspection could even include environmental testing. The appraiser should be given access to the premises and, in fact, has a right to access the premises. Otherwise, the property owner may waive or delay its right to an advance payment. See EDPL §§302 and 404.
You should keep a record of which appraisers, engineers and/or inspectors visit the premises, the date of their visit and the time spent by them in the premises. They should contact you in advance to arrange a time that is mutually convenient and not appear without notifying you first.
Before the inspection can take place, the condemnor must give you notice, and may be required to post a bond to cover against any damages caused by the inspection. If this situation occurs, or you are uncertain, it is important that you contact your condemnation counsel immediately as this inspection could interfere significantly with the use of your property. Counsel will assure that an appropriate bond or restrictions are placed on such inspection.
(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.
Leases will typically contain provisions governing the rights of the landlord and tenant in the event of condemnation. For example, most leases contain provisions giving the landlord or tenant the option to cancel the lease in the event of a taking, [There is no general concept of “fairness” in the allocation. The literal terms of the lease will govern.] especially if the take is substantial as defined by the lease.