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City of Englewood v. Exxon Mobile Corporation

406 N.J. Super. 110, 966 A.2d 1082 (App. Div. 2009)

CONDEMNATION; MORTGAGES — When a property is taken by eminent domain, a mortgagee is entitled to receive the contract interest rate on the outstanding principal balance, but only until the date a court rules that the mortgagee may seek withdrawal of deposited funds; thereafter, it is limited to the interest rate actually earned on the funds being held by the court.

A parcel of land was encumbered by a mortgage. The interest rate on the note was 7.5 percent. The mortgage had a clause which assigned, to the mortgagee, any condemnation award related to the property. When the municipality filed a condemnation action, both the owner and lender filed answers as interested parties. Ultimately, the municipality deposited its estimate of just compensation with the New Jersey Supreme Court Trust Funds unit. The mortgagee challenged the calculation of interest on the deposited amount. The lower court ruled that the mortgagee, in addition to receiving the outstanding principal balance on the loan, could receive the 7.5 percent contract interest rate up to the date the court determined the lender could seek withdrawal of deposited funds. Thereafter, it would be limited to the 4 percent interest rate earned, at that time, by the Trust Funds Unit. The mortgagee appealed, arguing that as a matter of law it was entitled to interest at the rate stated in the mortgage note for a reasonable period of time after the condemnation proceeds were actually made available for withdrawal.

The Appellate Division first addressed the interest rate. It held that once a declaration of taking is filed and just compensation is deposited in court, a mortgagee becomes entitled to the condemnation proceeds and the mortgagor’s obligations are extinguished. In the instant matter, the Court held that once the funds were deposited and no impediment existed for the mortgagee to apply for withdrawal of the deposited funds, it only was entitled to interest at the rate earned on the deposited funds. Even if access to the funds is delayed, where the delay is not attributable to the mortgagor, there is no sound reason to require the mortgagor to continue to pay the higher contract interest rate for the sole benefit of the mortgagee. Accordingly, the Appellate Division affirmed the lower court’s ruling as to the rate of interest.

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