Members of our condemnation group recently attended a national conference dealing with the latest in eminent domain laws and issues. Attorneys from across the country noted that lenders nationwide more and more are intervening in eminent domain proceedings. Owner/Borrowers fail to appreciate that many deeds of trust (“trust deeds” in Oregon) address what happens when the property securing a loan is being taken by the government. Some of these clauses give a bank or other lender the right to intervene in a condemnation lawsuit at the expense of the owner/borrower. Before the economic downturn, lenders were unlikely to be involved in condemnation actions. In those days, banks just sat on the sidelines and waited for the results of a condemnation lawsuit.
Most deeds of trust or trust deeds contain a provision that gives the lender the right to any proceeds resulting from an eminent domain proceeding (read and understand your loan documents). Of course, the lender or borrower pays little attention to such clause because the odds of their property being taken by the government are slim or unknown. Sometimes these provisions require the owner/borrower to pay the lender’s attorney fees and costs in an effort to protect the lender’s security interest. An owner/borrower should urge that their attorney work on the phase of a condemnation proceeding where the fair market value of the property is determined. Then each party can have their own attorney represent their respective interest in the apportionment phase—where the court determines how to apportion the proceeds—if the lender and borrower cannot agree on how the proceeds should be apportioned.
Is the lender entitled to all of the proceeds? What happens if the determined fair market value of the property does not sufficiently cover the amount of the loan? These questions can be answered in the apportionment phase of a condemnation proceeding.