The right to significant domain is used by a government agency when a house or other property is confiscated to make way for a public project such as a new road, bridge or school.
The revenue clause of the Fifth Amendment of the US Constitution requires that the owner be fairly compensated for the loss. Courts have decided that the property owner must be paid the market value of the property.
With a typical mortgage, the amount can be enough to pay for a new home because the homeowner’s equity increases as they make the mortgage payments. However, the situation might be slightly different if the homeowner has taken out a reverse mortgage.
The central theses
- Significant domain cases in reverse mortgage real estate are rare but can occur and create complications for borrowers.
- Unlike traditional forward mortgages, reverse mortgages decrease a homeowner’s equity, leaving little more than is needed to pay off the loan and not enough for a new home, even if the property being demolished has a reasonable market value will.
- The proportion of home value that is being borrowed against and whether values are rising in a particular home market are two key factors.
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How Eminent Domain works
Eminent domain is the authority of a government, whether federal, state or local, to take private property for public use after due compensation has been paid. This practice occurs under different names in many different countries. It may not seem fair to the owners of the property, and significant domain cases, particularly when the owners feel they have not been fairly compensated, are fairly common.
Eminent Domain and the Reverse Mortgage
The balance payment, combined with the home’s equity, may be enough to pay for a new home or at least a down payment on a new mortgage. However, if the homeowner has a reverse mortgage, the homeowner may not have enough remaining equity in the home to pay off the loan and use the settlement payment to buy a new home.
Your chances may be better if the homeowner has significant equity in the property. The home’s value may have increased since the reverse mortgage was obtained, or the homeowner may have retained significant equity in the home by only borrowing a limited amount.
The worst-case scenario occurs when the homeowner has borrowed a significant amount of the property’s value in reverse mortgage payments and has not had enough time (or luck enough) to enjoy a significant increase in the property’s value. In such cases, the government payment can be well below the replacement cost.
Important
Homeowners may incur additional costs such as B. for ratings and moves, which are not necessarily covered in all major domain cases.
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house value
The problem arises when the amount borrowed leaves the homeowner with little equity in the property and thus little actual money from the settlement with the sentencing authority.
In one case in 2012, an Oregon homeowner was offered just enough money to pay off her reverse mortgage when the state Department of Transportation needed her home for a highway project. The state authorities finally agreed to let the woman, then in her 80s, live rent-free in a house that she owned for as long as she needed it.
In an era of rapid home appreciation, such situations are less likely. A home’s value is likely to exceed the amount it borrowed years ago, notes David Hensonmanaging partner of Henson and Fuerst of Raleigh, North Carolina, a specialist in major domain and related property law.
However, there are downward movements on the housing markets. While the law varies from state to state, sentencing agencies and courts are unlikely to consider the homeowner’s debt.
Real Estate Value Vs. Debt
“The relevant factor is really how much the property is valued before they take it, what the value of the property is and what the damage is as a result,” says Henson. “The guilt is irrelevant to how the damages will be tried or attempted if it comes before a jury.”
Many homeowners face additional costs in such a situation, such as: B. Appraisal fees and relocation costs, which are not necessarily covered in significant domain cases.
As with classic forward mortgages, the language of the respective loan agreement is decisive. It should set out what will happen if the property is convicted. It should also state that the proceeds are to go to the homeowner, although the lender must approve the final agreement.
How does Eminent domain work?
Eminent Domain is the right of a local, state or federal government to acquire property deemed necessary for the public good. The Fifth Amendment to the United States Constitution requires owners of such properties to be fairly compensated. This generally means that property owners are paid fair market value.
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How Does an Eminent Domain Procedure Affect a Reverse Mortgage?
The effects are largely the same as with a traditional or forward mortgage. That is, the government pays the homeowner, who then has to pay any outstanding balance on the home loan.
At best, an owner who has significant equity in the property can replace it using the government payment.
In a reverse mortgage, the owner’s equity has been reduced by the amount borrowed plus interest and other repayment costs. In such cases, the combined equity and government payout may not be enough to purchase a replacement home.
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How can I protect my property from Eminent Domain?
There’s not much anyone can do to protect your property from a high profile domain. It is not possible to predict the future needs of the public or government. It may seem unfair, but property owners don’t have many options to protect their property from government confiscation.
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The final result
A major domain conviction can seriously complicate the financial and housing situation of homeowners using a reverse mortgage, especially if a large portion of the home’s equity has been withdrawn.
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Sources given, via www.investopedia.com.
