When a property is condemned through the process of eminent domain, banks often have a vested interest in that property through a deed to secure debt, but rarely do they get involved in the financial negotiations for that property, even though doing so would be in their best interest, says Carl Varnedoe, an attorney in the eminent domain practice group at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC.
“Banks have demonstrated a great reluctance to be principally involved in the protection of their secured interest,” Varnedoe says. “Instead, they’ve left it up to the property owner, even though security agreements give the secured party — the lending institution — the right to collect all condemnation proceeds. Lending institutions have a huge stake in the game, and they have a legal right to participate in the proceedings, but, for some reason, they don’t get principally involved in the determination of what their security — the condemned property — is worth. Even though they’re entitled to the proceeds, they just allow the property owner to fight the fight.”
Smart Business spoke with Varnedoe about property owners’ rights in eminent domain and how banks could benefit by being involved in the process.
Who can condemn property?
Any governmental agency or quasi-governmental agency that has been granted the power of eminent domain can take private property and convert it to public use. Because of the tremendous growth in the Atlanta area and the need to expand existing infrastructure as well as create new infrastructure such as roads and bridges, the state of Georgia and other entities have been extremely active in the condemnation arena in the last 15 years.
What is the first thing a business owner should do when notified of condemnation proceedings?
If a condemning authority knocked on my door, the first thing I would do is seek out competent counsel to review what is being proposed to assess from an economic standpoint whether the interest being acquired and the potential impact to the remaining property justifies retaining counsel to pursue the matter.
As a general rule, particularly when public money is being spent, condemning authorities feel an obligation to purchase whatever interest they need for as little as possible. The role of an attorney is to assess, with the help of expert witnesses, whether the compensation offered is adequate to compensate for the loss of the property and to ensure that the condemning authority accounts for all compensable interest in the property.
There is almost always more money available to the property owner than the initial offer from a condemning authority. Market value exists within a range, which lends itself to negotiation. That is where an attorney with knowledge of applicable law becomes invaluable.