A mortgagee upon condemnation of the property is not without resources. The mortgagee wants to be paid the principal balance on the secured debt.
With respect to the mortgage payoff, “It is well established that, upon the vesting of title in a condemnation proceeding, all lien interests in the subject property by virtue of mortgages, unpaid taxes, or unsatisfied judgments, are extinguished (see, In re County of Nassau [Gelb – Siegel], 24 NY2d 621, 626; Copp v Sands Point Marina, 17 NY2d 291, 293; Muldoon v Mid-Bronx Holding Corp., 287 NY 227; Matter of Barber [State Comptroller], 274 App Div 712; Irving Trust Co. v Hughes, 239 App Div 74, 76). However, substituted in their place are equitable liens against the condemnation award to the extent of each lien and interest thereon as of the date title vested (see, In re County of Nassau [Gelb – Siegel], supra; Copp v Sands Point Marina, supra).” County of Rockland v Kohl Industrial Park Co., 172 AD2d 607, 609 (2d Dept 1991). Matter of City of New York (Crown Hgts. 5th Amended Urban Renewal Plan), 2007 NY Slip Op 51349(U), ¶¶ 3-4, 16 Misc3d 1108(A), 1108A, 841 NYS2d 825, 825 (Sup. Ct.)
Accordingly, as the case law recounts, when a mortgagee has elected to enforce its mortgage against the condemnation proceeds, it cannot ascertain additional demands. “…since the mortgagees chose to enforce their mortgages against the condemnation awards in the instant proceeding…their liens have been replaced by equitable liens against the condemnation award to the extent of each lien and interest thereon as of the date vested. Thus, no further rights or demands may be asserted…in this proceeding.” Matter of City of New York (Crown Hgts. 5th Amended Urban Renewal Plan, 16 Misc3d 1108(A) (Sup. Ct. Kings County, 2007)
The mortgage was extinguished on the title vesting and has been replaced by an equitable lien.
A condemnation accelerates the prepayment of the mortgage. “No such voluntary prepayment of the mortgage by the mortgagor occurred here, however. It was the State’s appropriation of the property securing the mortgage which accelerated the mortgage payment. By the language of the mortgage, this event was neither envisioned nor contemplated, by the parties. Claimants, therefore, were not entitled to the prepayment penalty under such circumstances.” Silverman v State, 48 AD2d 413, 414 (3d Dept 1975).
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