What Happens When the Government Condemns Your Property?
By: DAVID D. MEYER
Fall 1996
Each day the news is filled with stories of fires, earthquakes, tornadoes and other disasters visited on improvements to real estate. When we think about these incidents, we are thankful that they didn't happen to our homes, businesses or real estate investments. Yet there is a phenomenon that can be equally disastrous but is seldom the topic of news stories. It is called condemnation. We see roads being constructed, traffic patterns changed, intersections created and closed, buildings coming down and going up. These activities often involve the involuntary loss of privately owned real property. This involuntary loss occurs when the government exercises its power of condemnation.
Most governmental subdivisions (and certain private corporations such as railroads and utilities) have the right to exercise the sovereign power of condemnation. This means that if a governmental subdivision needs private property for a legitimate public purpose, it has the power to take that private property subject only to the obligation to compensate the owner. What happens when your property becomes the subject of the exercise of this awesome governmental power?
Almost always, the project that causes the condemnation is the subject of preliminary public planning, hearings and other governmental proceedings. Governmental employees such as engineers, land planners and appraisers will usually contact affected landowners long before the actual taking occurs. These employees generate preliminary drawings and plans that often are made available to the public before the actual condemnation process starts. Sometimes this planning process can go on for years. In fact, this early planning can itself have a serious negative impact on the value of the affected real estate long before the government actually takes the property. Property owners should monitor the planning process as closely as possible in order to learn of the potential effect on their property, and to minimize damage by influencing the design of the project. Prudent property owners should seek the advice of lawyers and other knowledgeable professionals as soon as they realize that their property may be involved in a particular public project.
At some point, the government will end the planning process and formally decide to proceed (or not) with the project. Once this decision has been made, the government will contact owners and attempt to buy the property it needs prior to condemning it. Typically, government representatives contact affected owners, describe what they want, and offer money. Property owners should exercise great caution at this stage, for at least three reasons. First, the government is the same as any other buyer of real estate; it wants to acquire the property for as little as possible. Second, in almost all cases, the amount of this early offer will later become available again even if it is initially refused. Third, the government will often use these preliminary negotiations to gather information to be used against the owner later in the formal legal condemnation proceeding.
If the owner, after careful consideration and consultation with a lawyer and other knowledgeable professionals, concludes that the offer is fair, then it should be accepted. The property will change hands and the transaction will be closed like any other real estate deal. As part of the transaction, the government will likely ask the property owner for a release, and all opportunity to seek additional compensation will be lost.
If the property owner concludes that the offer is inadequate, he or she should reject the offer. The government will soon thereafter start a formal condemnation proceeding. Occasionally the government at this point will ask permission to use the property it wants before starting the condemnation. Most times the property owner should refuse such a request.
Condemnation is a formal court proceeding that begins when the government serves and files a legal pleading. Often the government will proceed by what is known as "quick take." This means that 90 days after the service of the legal papers, title to the property will pass from the owner to the government by operation of law upon payment to the owner of an amount of money that the government determines to be just compensation. This payment will almost always be equal to the offer the government had made early in the negotiation process. The actual final compensation is determined later in the proceeding. The important point now is that the owner who rejected the first offer will have been paid the same amount that was originally offered and retain a chance to seek an increase in compensation, while the owner who accepted the original offer will have the same money but no chance to seek an increase.
After the condemnation proceeding begins, the presiding court will appoint three disinterested residents of the county in which the property is located to serve as commissioners. The commissioners will typically be a lawyer, a real estate appraiser and a real estate broker. The commissioners' duty is to determine the amount of money which will fully and fairly compensate the owner for what has been taken. Theoretically, the compensation that the commissioners determine may be more or less than the amount paid by the government in the "quick take" process. In the overwhelming majority of cases, however, the amount of compensation that the court-appointed commissioners arrive at is greater than the government's original offer or payment.
In carrying out their duties, the commissioners view the subject property and hold hearings. These hearings are similar to a court trial but much less formal. They are typically held in a conference room, and both the landowner and the government are given an opportunity to establish what they think the compensation should be.
After the hearing, the commissioners deliberate and make an award much like a jury does. Either party may appeal this award. If neither does, the government pays the award with interest accruing from the date the title passed to the government to the date of payment, less any amounts previously paid. Upon payment, the proceeding comes to an end.
If either party appeals, the matter is then converted to an ordinary lawsuit in district court. After appeal the government must pay the landowner 75% of the commissioners' award less any amounts previously paid. Thereafter the case is presented to a judge sitting with or without a jury. The court or jury's verdict is usually the last word on the amount of compensation the owner will receive, subject only to each party's right to further appeal.
Once the government determines that private property is needed for the completion of a public project, that property will likely be lost. The property owner is entitled to compensation for the loss, but unless great care is taken that compensation might be less than adequate. Landowners caught in the condemnation process need the assistance of experienced lawyers and other professionals to protect their right to be paid a fair amount for the property being taken, damaged or destroyed.