Mortgage Lender's Recovery of Interest on Condemned Parcel Limited by Appellate Court
On February 10, 2009, a New Jersey appellate court limited the rights of a mortgage lender to receive interest on property taken by eminent domian, upon which the lender held a mortgage at the time of the taking. The appeals panel ruled that the mortgage lender was only entitled to receive, in satisfaction of its mortgage, interest at the mortgage rate until a reasonable period after the funds paid by the condemning authority were deposited into the Trust Fund of the New Jersey Superior Court. City of Englewood v. Exxon Mobil Corporation, et als, Docket No. A-2490-07T2.
In this case, the condeming authority (the City of Englewood) filed its complaint to take the commercial property located on N.J. State Highway #4 in Englewood, New Jersey, in March, 2005. The property owner was required to file a motion to compel the City to also file a Declaration of Taking and to deposit its estimated compensation, which actions would provide the City with legal ownership under New Jersey law and which would allow the owner and other named defendants in the lawsuit to apply for a withdrawal of the funds on deposit. The owner’s motion was granted and in March, 2006, the City deposited $1,550,000 – its estimated compensation for the property, in the court’s Trust Fund.
After the deposit was made, both the owner and the mortgage lender, Bank of America, applied for a withdrawal of the funds – the owner intended to use the monies to pay off the mortgage loan, but disagreed with Bank of America as to its entitlement to interest on the unpaid loan principal and to attorneys fees incurred by the Bank in participating in the condemnation.
On the issue of interest, the appellate court followed a 2001 Appellate Division opinion in the matter entitled City of Orange v. Empire Mortgage Service, 341 N.J. Super. 216, which held that a mortgagee is entitled to interest at the rate stated in the mortgage note until a reasonable period of time after the condemnation proceeds were made available for withdrawal. In the Englewood case, the trial judge had determined that Bank of America was entitled to 7.5% interest (the rate specified in its note) until April 24, 2006, approximately 53 days after the deposit was made, and thereafter would only be entitled to receive interest that actually accrued on the principal sum while on deposit in court. This finding was affirmed on appeal. In other words, and following the Empire Mortgage ruling, the owner in the Englewood case was relieved of its contractual obligation to pay its mortgage lender interest, at the mortgage note rate, a reasonable time after the condemnation funds were made available for withdrawal. the lender would receive, however, interest which actually accrued on the monies deposited after the “reasonable ” period of time expired and until it actually received the funds withdrawn from the court.
With repect to counsel fees, which the parties’ mortgage specified were recoverable by the mortgage lender, the trial court had awarded Bank of America the sum of $5,000.00 in counsel fees, but the Bank appealed, contending that the fee award was arbitrary and significantly lower than the fees it actually incurred. The appellate court reversed and remanded the trial court’s decision for further consideration because the record was devoid of any evidence explaining the court’s $5,000.00 award.
This case places clear limitations upon a mortgage lender’s right to receive interest on funds on deposit in eminent domain matters and cautions parties to expedite their efforts to withdraw funds on deposit. It also acknowledges that contractual provisions between parties, such as mortgages, will generally be honored by New Jersey courts but that the courts will seek to interpret those contractual provisions in a way which is fair to all involved.
