What About My Mortgage?

Having the government condemn your property can be scary on its own but can become outright terrifying if you are still in the process of paying off your mortgage. You might even be in a situation where the mortgage balance is more than what the government is offering you for your property. You may not have a mortgage on the property, but you might have borrowed against the property for a bank loan or a line of credit. In any case, you do have options to help protect you in this situation.

The title search is the most important document in this process because it tells the government whom to inform of the condemnation. Everyone who has an interest in the property should be on the condemnation complaint that the government files to start the eminent domain process. If your bank or creditor does not know you are losing the property, they won’t be able to help you.

Once everyone knows who is involved, there are some options you have concerning your mortgage lender and creditors with liens on your property. All of these options address who is going to get a piece of the money that the government has deposited with the Register of Deeds to cover the value of your property.

Paying off the Debt

The first option you have is to pay off the balance of the mortgage or another loan in full. For most people, this is only possible if the government offers a price that is greater than or at least equal to the amount you owe on the debt. As we have discussed in other articles, this is not the most likely outcome. However, if you are lucky enough that this is the case, you can draw down the funds placed on deposit with the court clerk and still be able to seek additional compensation later on. For more on that see Compensation for Relocation Costs.

Getting a Complete Waiver from the Lender

The next option you have is to obtain a waiver from the bank. What does the wavier do? It operates as notice to the government that the bank does not want any of the proceeds of the eminent domain price. If you owe a bank money, why would they do this? This usually happens when you are only losing part of your land or the price you are being paid for the land is so low that the bank does not really have an interest in collecting it.

In this situation, the bank will basically ignore the eminent domain and expect you to pay on the loan or mortgage according to its original terms.

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Getting a Partial Waiver from the Lender

What if the government is not offering enough to pay off your mortgage in full, but the bank will not waive its rights? For example, you still owe $100,000 on your mortgage, but the condemning agency has only deposited $80,000. In this case, some careful reading of your mortgage paperwork is in order.

Your mortgage, called a Deed of Trust, may have clauses that could reduce how much you owe. Most of the time, this revolves around damage to the property that is not your fault. If the property was damaged in some way that you could not prevent – say by the government clear cutting it and building a sewage plan – you might be entitled to reduce the amount you owe.

You may also use this as an opportunity to draw the bank’s attention to the fact that the government offer for your property is woefully low. Often the bank will work with you or your attorney to challeng the government’s offer in the case. In that case, you or the bank may draw down the amount deposited with the court clerk and then seek more funds in the court action. Any further money won would go towards paying off your loan with any excess going into your pocket.

Paying Some, Refinancing the Rest

If your bank is not interested in any sort of waiver, you may consider using the condemnation money to pay off as much of the debt as possible and then refinancing the balance.

Seeking Additional Compensation

All of the options we discussed above involve you actually withdrawing the money that the government has deposited for the condemnation. However, that does not mean that you accept that amount as the full value of your property. You still have the right to claim that your property was undervalued and attempt to seek additional monies from the government.