February 17th, 2014
We live in the age of foreclosures. The courthouses are filled with pro se litigants, trying to find the proper hearing room, or showing up 20 minutes late and missing the hearing entirely.
None of this has stopped Florida’s population growth and the deterioration of our roads. FDOT and other condemning authorities can’t wait around for the foreclosures to work their snail’s pace through the system. So the ‘condemnation in concert with foreclosure’ has become more of a rule than exception in residential eminent domain matters.
Several of our attorneys are currently on all sides of this issue. In one case, we represent a property owner who was already deep in a foreclosure case when he received notice of a taking, creating a tangled web of interacting and overlapping interests of the taking authority, bank, courts and property owner.
In other cases, we are working on behalf of a condemning authority which needs a portion of property for a public project. The problem is the property is deep in foreclosure and the owner is nowhere to be found.
Finally, the third side. In yet other cases, we work on behalf of banks which have been put on notice that they have an interest in, or a property they are in the process of foreclosing has been slated for partial acquisition.
The unique issues created when these two claims colide have yet to make it to the appelate courts, and questions still abound. For example, does the condemning authority take subject to the foreclosure? Could they end up paying the wrong party if the Court grants the foreclosure? What are an owner’s rights to the proceeds in an eminent domain action where they are already in foreclosure?
No matter whether you are an owner, bank or represent a condemning authority, the first step is to check your mortgage. Most, if not all, have a provision entitling the bank to some or all of the proceeds of any condemnation, provided they are applied to the outstanding balance. Moreover, many contain provisions allowing the bank, either always or in situations where the owner is not appropriately defending their title, to hire attorneys to stand in the owner’s shoes and contest the taking or argue for appropriate compensation.
The real Gordian Knot comes where a condemning authority needs only a portion of property already in a mortgage foreclosure. There, a lis pendens has been filed on behalf of the bank seeking the foreclosure judgment. A lis pendens is a document filed in the public records putting the world on notice that there is a lawsuit out there, or a claim, where someone other than the title holder is asserting a right to title to a piece of property. Anyone who acquires title to the property while a lis pendens is in place may be doing so subject to the outcome of the litigation.
This means the condemning authority may or may not (depending on who you ask) be willing to go forward and secure title to the property. The competing theories are as follows: (1) with a lis pendens in place, any title transferred is subject to the decision of the foreclosure court where the case is pending. In this scenario, if a condemning authority obtains title from the fee owner, ignoring the mortgage holder’s lis pendens, the condemning authority could be taking the property subject to the outcome of the foreclosure case. In this scenario, the condemning authority may end up taking the property twice. Because of this, many condemning authorities want clarity in the title and concert between the eminent domain case and the foreclosure matter.
Alternatively, the power of condemnation may not subject to a lis pendens, as all property is held subject to the sovereign’s ultimate right to retake it. While this is probably the legally correct view, the practical application of this in system with title insurers who want title as clear as possible remains murky.
If you or your clients are experiencing both foreclosure and an eminent domain suit and would like more information on this topic or to discuss it further, feel free to contact us.