What occurs with a Condemnation Clause?

In the context of real estate and financing, a Condemnation Clause is a provision in a mortgage or loan agreement that addresses what happens when a property is taken by the government, usually for public use through eminent domain. This clause typically stipulates that if the property is condemned, the borrower is obligated to pay off the mortgage or loan using the proceeds from the sale of the property or any compensation received from the government.

This is correct because the purpose of the Condemnation Clause is to protect the lender's financial interest. When a property is condemned, the government often compensates the owner based on the property’s fair market value. The borrower, under the terms of the clause, is required to use this compensation to satisfy their outstanding loan, thereby ensuring that the lender recovers their investment without significant loss.

Other options do not accurately reflect the typical outcomes or rights associated with a Condemnation Clause. For instance, the government generally compensates property owners when condemnation occurs, rather than taking property without compensation. Additionally, it is not standard practice for lenders to have the right to increase interest rates due to condemnation, nor does it grant borrowers the right to sue the government for market value after a property has been condemned. Thus, the clause primarily