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Eminent Domain — A General Overview of a Mortgage Holder's Rights in TexasA mortgage holder's status in a condemnation suit differs on a case by case basis and has been the subject of debate among some Texas courts. The general rule under Texas eminent domain law is that a condemnor should join any party with a legally recognized interest in the property to be condemned. Therefore, it is generally in the condemnor's best interest to name the mortgage holder as a party to the condemnation proceeding. However, failure to do so does not create a cause of action against the condemnor until the mortgage is mature and the borrower is in default. The outstanding balance of the mortgage and/or the amount of land taken is important to the mortgage holder's rights in a condemnation proceeding because the mortgage holder is only entitled to recover damages for the injury the condemnation caused to its security interest in the condemned land. As a result, if the security depreciation is insubstantial, the condemnor is probably justified in not naming the mortgage holder as a party in the condemnation proceeding. The condemnor's potential liability to the mortgage holder increases as the percentage of land taken from the collateral increases. Once a mortgage holder has been properly joined as a necessary party to the condemnation proceeding, the condemnor must provide it with notice of the condemnation hearing. At the hearing, three disinterested "special commissioners" hear evidence of the value of the property and determine the amount of the condemnation award. For that reason, a mortgage holder should retain counsel to represent its interest at the hearing. When there are multiple parties with interests in the condemnation award, the special commissioners should separate the award into each party's interest whenever possible so it can be paid to that party individually. In a mortgage situation, it may be hard for the commissioners to apportion the award between the mortgage holder and borrower. If the special commissioners are not able to apportion the award between the parties, it is up to said parties to file a motion for apportionment with the county court at law. This motion, as well as any appeal as to the amount of the award, must be made within thirty (30) days of the condemnor's deposit of the award into the registry of the court. If a mortgage holder fails to file a motion for apportionment, it risks the court erroneously ordering the entire award to the borrower. While a mortgage holder's failure to protect its security interest during a condemnation of the secured property can be a costly and sometimes fatal mistake, protecting its interest is as simple as retaining counsel to oversee the process and insure its interests are represented throughout the same.
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