Header graphic for print

Eminent Domain & Real Estate Litigation Blog

Condemnation and Real Estate Litigation

Single-tenant Net Lease Cap Rates Drop

Posted in Valuation

Data from commercial real estate firm Calkain Companies confirms that the demand for net lease assets remains strong.  Transaction volume for these properties increased 15 percent.  Retail net lease cap rates have compressed to below 7 percent.

“Net leases remain highly popular in 2014, averaging the lowest cap rates in the past three years despite interest rate increases over the same period,” Winston Orzechowski, research director with Calkain and co-author of its Net Lease Economic Report.   “Institutional investors are increasing their exposure as net leases become a significant part of general commercial real estate portfolios.”

Risk of Property Valuation Fraud Reportedly On The Rise

Posted in Valuation

According to analytics firm Interthinx, the risk of property valuation fraud increased during the first quarter.  The report noted that in addition to high property appraisals, individuals purchasing and listing multiple properties in the same neighborhood to artificially control prices to their advantage also is a contributing factor to the rise in property valuation fraud risk.

“This quarter’s report is a reminder that lenders need to be aware of emerging fraud risks,” Jeff Moyer, president of Interthinx, said in the report. “The rise in property valuation risk is troublesome because collateral values are a critical element in making sound lending decisions. To make lending decisions with increased confidence in the loan’s quality, we recommend that lenders use automated tools early in the valuation process to double check opinions of value, quality of work and regulatory compliance on issues such as licensing.”

In order, the top 10 riskiest states and regions during the first quarter are California, the District of Columbia, Florida, Maryland, Arizona, Connecticut, New Jersey, Maine, Arkansas and Colorado. For the first time since the inception of this report in 2009, Nevada is not in the top 10.

AI Member Appointed to Pa. Board of Certified Real Estate Appraisers

Posted in Appraisers

Joseph Pasquarella, MAI, has been appointed by Gov. Tom Corbett to the Pennsylvania State Board of Certified Real Estate Appraisers for a four-year term, the Appraisal Institute reported July 14.  Pasquarella, senior managing director at Integra Realty Resources’ Philadelphia office, will help establish professional standards for all real estate appraisers throughout the state and help regulate the certification process.

The State Board of Certified Real Estate Appraisers regulates the certification of real estate appraisers and assessors in the Commonwealth of Pennsylvania. The board establishes standards of professional appraisal practice, and it examines, denies, approves, issues, revokes, suspends and renews appraisers and assessors certificates.

Our Firm Defeats Statute Of Limitations Challenge To Just Compensation Demand

Posted in Eminent Domain

I recently argued a case before the PA Commonwealth Court regarding whether our client, a church, was barred by the statute of limitations to seek just compensate for the partial taking of its property.  In In re: Condemnation of Land, 2014 WL 3028035, Jenkintown Borough filed a declaration of taking in 1998 seeking to take a portion of the Church’s property.  We did not represent the Church at that time and its prior counsel filed “Preliminary Objections” challenging the taking.  After the filing of the POs, the Borough’s counsel forwarded a check purporting to be the “estimated just compensation” – or EJC – for the taking.  The Church’s counsel properly returned the check because it was not permitted to pay EJC when POs are pending and the EJC amount admittedly was not based on what was actually taken.

The parties agreed to remove the POs from the argument list in an effort to resolve the matter and neither side ever sought to have it relisted.  Many years passed and we were ultimately retained to represent the Church to obtain just compensation for the taking.  In 2013 we filed  petitions to withdraw the POs and to determine the amount of just compensation owed to the Church for the taking.  The Borough objected arguing that the statute of limitations barred the claim.  The trial court rejected that argument and the Borough appealed to the Commonwealth Court.

The Commonwealth Court affirmed and held that the statute of limitations did not bar the Church from seeking just compensation.  Although we argued numerous bases as to why the statute of limitation did not bar the claim, the Court affirmed on one specific basis.  The PA Judicial Code states that the 6 year statute of limitations commences when “the condemnor first made payment” of the EJC.  The Borough argued that forwarding the check constituted payment even though it was returned.  The Court rejected that argument and held that, since the Eminent Domain Code distinguishes between “‘payment’, which is required to trigger the statute of limitations, and ‘a written offer to pay,’” the forwarding of the check did not trigger the statute of limitations.

PA Supreme Court: Murder/Suicide Does Not Need To Be Disclosed To Home Buyer

Posted in Uncategorized, Valuation

My partner, Abe Reich, recently successfully argued before the PA Supreme Court a case determining “whether the occurrence of a murder/suicide inside a house constitutes a material defect of the property, such that appellees’ failure to disclose the same to the buyer of the house constituted fraud, negligent misrepresentation, or a violation of the Unfair Trade Practices and Consumer Protection Law’s (UTPCPL).”  The Court held that “a murder/suicide does not constitute an actionable material defect.”  Although it is an unusual setting, the case has broader applications.

In Millliken v. Jacono, the Defendant purchased a house that was the location of a murder suicide by its prior owners.  After renovating the property, the Defendant listed the property for sale and informed their listing agents of the murder suicide.  However, after consultation with attorneys and representatives of the PA Real Estate Commission, she did not disclose the murder/suicide as a known material defect in the Seller’s Property Disclosure Statement.

The Plaintiff purchased the property and after moving into the house learned of the murder/suicide.  She claimed that had she known of the incident, should would not have purchased the house.  She sued the defendant and the listing agent for fraud, negligent misrepresentation and a UTPCPL violation based on the Defendant’s failure to disclose the murder/suicide.

Defendants’ moved for summary judgment arguing that the Plaintiff’s claim failed as a matter of law.  The trial court granted summary judgment dismissing the case, a three-judge panel of the Superior Court reversed the trial court and an en banc Superior Court, on reconsideration,  affirmed the trial Court.  Plaintiff appealed to the PA Supreme Court.

The PA Supreme Court affirmed.  It explained, “Regardless of the potential impact a psychological stigma may have on the value of property, we are not ready to accept that such constitutes a material defect. The implications of holding that non-disclosure of psychological stigma can form the basis of a common law claim for fraud or negligent misrepresentation, or a violation of the UTPCPL’s catch-all, even under the objective standard posited by appellant, are palpable, and the varieties of traumatizing events that could occur on a property are endless. Efforts to define those that would warrant mandatory disclosure would be a Sisyphean task.”

The Court further explained that, even if an event is such a majority of the population would find disturbing, and a certain percentage of the population may not want to live in a house where any such event has occurred . . . this does not make the events defects in the structure itself. The occurrence of a tragic event inside a house does not affect the quality of the real estate, which is what seller disclosure duties are intended to address.”

Therefore,, even though the underlying facts are unusual, there are applications to other settings.  For example, an aspect of a house that negatively impacts value does not necessarily need to be disclosed.  Further, it appears the Court is limiting required disclosures to “defects in the structure itself” and the “quality of the real estate.”

PA Considering Extending Time To Challenge Condemnations

Posted in Eminent Domain

PA law requires that challenges to condemnations must be filed within 30 days of service of the Declaration of Taking. The document that is filed challenging the taking is called “Preliminary Objections.”

HB 2387, currently being considered in the PA House of Representatives, would increase the time for filing the Preliminary Objections to 90 days. This would be a significant change. A condemnee is required to properly state all of its objections within 30 days. Failure to include an objection may waive the ability to assert that objection. Therefore, it places significant pressure on the condemnee to file its challenge correctly and asserting all of its challenges within the 30 day period. Increasing that period to 90 days would help alleviate that pressure.

PA Considering Amending Condemnation Fees And Expenses Reimbursement Statute

Posted in Eminent Domain

The PA Senate is considering a bill which would make minor changes to the PA eminent domain statute providing for reimbursement for professional fees and expenses. Generally, PA requires reimbursement for up to $4,000 for those fees and expenses. If enacted, SB 1096 clarifies that this payment is owed “per property, regardless of right, title or interest [of the claimant].”

It also would change the statute, 26 Pa.C.S.A. § 710(a), to only provide for a reimbursement of $1,000 “where the taking is for an easement related to underground piping for water or sewer infrastructure.” This would be the only distinction based upon the purpose of the taking.

Tax Appeal Victory

Posted in Assessments

We recently had a significant victory in a large tax appeal case in Allegheny County, PA.  The property included 2 office buildings that were being transitioned from a single tenant to a multi-tenant property. There were 2 years under appeal and, prior to our challenge, the assessed fair market value was $49 million.  Our appraised values were $16.7 million and $21 million.  The taxing authority’s appraised values were $20 million and $30.9 million.  I attempted to settle the case, but the taxing authorities were not interested in a reasonable resolution.  It went to a full hearing and the award was for our exact values.  The taxing authorities did not appeal the decision.

Cal Court Strikes Pre-condemnation Entry Portion Of Eminent Domain Statute

Posted in Eminent Domain

A part of California’s statutory eminent domain law has been declared unconstitutional. The Third Appellate District Court of Appeal ruled in Property Reserve, Inc. v. Super. Ct. of San Joaquin County that pre-condemnation entry statues violate California’s version of the US Fifth Amendment’s taking clause – Article I, Section 19 of the California Constitution. This will make it more difficult for condemning authorities to conduct pre-condemnation planning. The Court ruled that any entity wishing to conduct statutory pre-condemnation studies must do so after filing a condemnation action.

California’s eminent domain statutes permit a condemnor to enter a property to conduct surveys, engineering tests and appraisals prior to the initiation of a condemnation action. Most states have similar statutes.

The Property Reserve Court ruled that the condemning authority’s proposed geological tests constituted a taking and found that the pre-condemnation entry statutes are unconstitutional. There will undoubtedly be an appeal.

Orlando Takes Church Property For Soccer Stadium

Posted in Eminent Domain

The city of Orlando initiated eminent domain proceedings to take property owned by a church to build a new soccer stadium. A judge ruled in January that Orlando could take the property via its eminent domain powers. Orlando spokesperson Heather Fagan issued this statement:

 ”We have spent the last year trying to work with the Williams family [which owns the church]. The City was willing to pay the Williams family a fair amount–substantially more than the appraised value plus relocation costs, but the City has to balance this with our duty to safeguard the assets of the City. When the Williams family retreated to their original demand of over $30 million we had no choice but to take this issue to the courts for resolution.”