If your house is condemned and you have a mortgage, the mortgage stays in force and every monthly payment stays due, even though nobody is allowed to live in the house. A condemnation order removes the right to occupy the property, not the debt secured against it, so the owner keeps paying the lender, the property taxes and the insurance while the house sits empty.
What happens next depends on why the house was condemned, what the insurance policy covers and how much equity is left. The four ways out are repairing the house, claiming on insurance, selling the house as it stands and, in the hardest cases, a foreclosure or a bankruptcy filing. If the condemnation has left you with a payment you cannot carry, the form below starts a cash offer on the house in its present condition.
This guide explains what a condemnation means, what it does to the loan, the insurance and the equity, and the steps a Maryland owner takes in the first weeks after the notice goes up.
What Does It Mean When a House Is Condemned?
A condemned house is a house that a local code official has declared unfit for human habitation, which means the occupants leave and nobody lives there until the defects are repaired and the order is lifted. In Maryland the order comes from the county or city housing and code enforcement office, such as the Department of Housing and Community Development in Baltimore City, and it is posted on the property.
Code officials condemn a house for four main reasons.
- Structural failure, such as a collapsing roof, a failed foundation or a fire that leaves the frame unsafe.
- Loss of essential services, such as no water, no heat in winter or an electrical system that is a fire risk.
- Health hazards, such as sewage backup, severe mold, rodent infestation or hoarding that blocks exits.
- Abandonment and decay, such as an open, vacant building that the code office declares a danger to the public.
A second, separate meaning of condemnation is the taking of private property for public use under eminent domain, which is covered below the main guide.
What Happens to Your Mortgage If Your House Is Condemned?
A code condemnation leaves the mortgage exactly where it was, so the balance, the interest rate and the monthly payment all stay the same and the lender expects the next payment on time. Four parts of the loan are affected in practice.
1. The monthly payment and your liability
The payment stays due, and missing it starts the same late fees and default process as on any other house. The loss of a place to live or of rent from tenants does not change the obligation, which is why the first weeks after a condemnation are about keeping the loan current while the owner pays for somewhere else to live.
2. The insurance claim
When a covered event such as a fire, a burst pipe or a storm caused the condemnation, the homeowners policy pays for the repairs up to its dwelling limit, and the loss of use coverage pays for temporary housing while the house is closed. The insurer names the lender on the claim check, so the lender controls how the repair money is released. A condemnation caused by neglect, wear or long term decay is usually outside the policy.
3. The value of the house and your equity
A condemned house sells only to buyers who pay cash or carry renovation funds, because no standard mortgage lender finances a house that nobody is allowed to occupy. The value drops to the price of the finished house less the repairs and the costs of the buyer, and an owner whose loan balance is close to the old market value ends up owing more than the house is worth in its condemned state.
4. The risk of foreclosure
Foreclosure follows only if the payments stop. In Maryland a lender files the foreclosure in the circuit court of the county, and the house remains salable by the owner until the foreclosure sale date. A completed foreclosure stays on a credit report for seven years.
What Steps Does a Maryland Owner Take After Condemnation?
A Maryland owner takes six steps after a condemnation notice, in this order.
- Read the notice and the deadline, which list the defects, the repairs required and the date by which the code office expects them.
- Review the mortgage agreement, which sets out what the lender requires when the property is damaged or loses its use.
- Call the lender before a payment is missed, because a forbearance or a loan modification is far easier to arrange while the loan is current.
- File the insurance claim when a covered event caused the damage, with photographs, the condemnation notice and the contractor estimates.
- Price the repairs against the value, using two contractor estimates and the recent sales of renovated houses nearby.
- Ask for help early, from a Maryland real estate attorney for the legal questions and from the free counselors at the Maryland HOPE Hotline at 1-877-462-7555 for the mortgage.
What Are the Options for a Condemned Mortgaged House?
An owner of a condemned house with a mortgage has four options, repairing the house, refinancing it, selling it as it stands or filing for bankruptcy, and the equity left in the house decides which of them works.
Repair the house and lift the order
Repairing suits an owner with insurance money or savings to cover the work. The repairs go through permits and a final inspection, after which the code office lifts the condemnation and the house can be lived in or rented again.
Refinance the mortgage
Refinancing a condemned house is rarely possible, because a new lender appraises the property in its present state. It works only when the owner has substantial equity or other property to borrow against.
Sell the house as it stands
Selling ends the payments, the taxes and the insurance on a house nobody can use, and the sale price pays off the mortgage at settlement. Cash home buyers purchase condemned houses without repairs, and a condemned house carries the same open cases as a house with any other open citation, which is why the route to sell a house with code violations in Maryland applies to a condemned house as well.
File for bankruptcy
A Chapter 13 filing pauses a foreclosure and spreads missed payments over a plan, and a Chapter 7 filing discharges personal liability for the debt while the lender keeps its claim on the house. Both carry long term credit consequences and need a bankruptcy attorney.
When a Condemned House Raises Other Questions
Some condemnations come with a second problem, and these four come up most often.
What happens to the mortgage when the government takes the house by eminent domain?
When a government body takes a house for public use, it pays the owner just compensation for the property, and the mortgage lender is paid off from that award before the owner receives the rest. The mortgage ends with the taking, and the owner keeps any compensation above the loan balance.
What happens when a fire leads to the condemnation?
A fire that leaves a house unsafe usually brings both a condemnation and an insurance claim, and the claim check goes to the owner and the lender together. Owners who decide not to rebuild sell the house in its burned state, and the ways to sell a fire damaged house in Maryland include a sale before the insurance settles.
What happens when the condemnation leads to missed payments?
Missed payments on a condemned house move toward foreclosure on the same timeline as any other Maryland mortgage, and the owner keeps the right to sell until the foreclosure sale. The ways of selling a house to avoid foreclosure apply to a condemned house too.
Is selling a condemned house different in Baltimore City?
Yes, a condemned or vacant house in Baltimore City often carries a Vacant Building Notice, which the seller discloses to the buyer in writing on or before the contract of sale. City liens and citations are paid from the sale price at settlement, and cash home buyers in Baltimore City buy condemned rowhomes with the notice in place.
Frequently Asked Questions About Condemned Houses and Mortgages
Do I still have to pay the mortgage if my house is condemned?
Yes, the mortgage payments stay due after a condemnation, because the order removes the right to live in the house, not the loan secured against it.
Does insurance pay for a condemned house?
Homeowners insurance pays when a covered event such as a fire, a storm or a burst pipe caused the condemnation, up to the policy limits. A condemnation caused by neglect or long term decay is usually not covered.
Can I sell a condemned house with a mortgage?
Yes, a condemned house sells like any other, and the sale price pays off the mortgage at settlement. The buyers are almost always cash buyers, because standard lenders do not finance a house that cannot be occupied.
How long does a house stay condemned?
A house stays condemned until the owner completes the repairs listed in the notice, passes the final inspection and the code office lifts the order. Some houses stay condemned for years, and some are demolished.
Can I live in my house after it is condemned?
No, a condemned house is closed to occupants until the order is lifted, and living in it breaks the order.
What happens to the mortgage if the house is demolished?
The mortgage stays due after a demolition, and the lender keeps its lien on the land. Insurance money, a sale of the lot or an eminent domain award are the usual ways the balance is paid.