Case Law Summaries

City of Orange Township v. Empire Mortgage Services, Inc.

• Opinion Date: June 15, 2001
• Real Property Law
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CONDEMNATION; MORTGAGES—A mortgage lender that does not promptly act to claim its share of eminent domain proceeds from a court-held fund is only entitled to collect interest at the interest rate earned on the funds and not at the higher loan interest rate.

Property encumbered by a mortgage was condemned by a municipality which deposited an amount it considered to be “just compensation” with the Clerk of the court. At the time of the deposit, the unpaid principal balance on the mortgage was less than the amount deposited with the court. About a month later, the municipality amended its condemnation complaint to join the mortgagee as an additional defendant. When the amount of the award was increased, the incremental amount was added to the deposit with the court. The borrower ceased making mortgage payments at the time of the initial deposit. About fourteen months after it received notice of the condemnation proceedings, the mortgagee first applied for funds from the condemnation proceeds to satisfy the mortgage. It calculated the balance allegedly due based upon the interest rate under the mortgage loan without regard either to the condemnation or the much lower interest rate being paid by the court on the proceeds it held. Under the terms of the mortgage, in the event of the total taking, the condemnation proceeds “shall be applied to the sum secured by this Security Instrument, whether or not then due, with any excess paid to the Borrower.” As the Court saw it, “there was a condemnation, and under the provision, the proceeds belonged to and were to ‘be paid to Lender.’ There was a ‘total taking,’ which resulted in an ‘excess.’ Under the Condemnation section of the mortgage, it was expressly agreed that ‘the proceeds shall be applied to the sums secured by this Security Instrument ... .’” The Court therefore held that the “Condemnation” relieved the mortgagor from its obligation to make payment after the condemnation award was paid into court and the funds became available for withdrawal by the mortgagee. In fact, the Court stated that “[i]t requires no great sophistication to grasp that, if all other things were equal, the mortgagee would have an incentive to inaction. It could leave the funds in the court at a low interest rate while claiming the higher interest rate in the loan documents and claiming late payment penalties.” As a consequence, the Court assumed that the mortgagee could have applied to withdraw the funds and obtain a decision on its application within 45 days after the date on which it received its notice. Consequently, it was not entitled to any interest under the mortgage note, late charges, or delinquency fees beyond that 45 day period.

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