Eminent Domain Blog : Pennsylvania Eminent Domain Lawyer & Attorney : Fox Rothschild Law Firm : Condemnation, Real Estate Valuation : Philadelphia, Bucks County, Pennsylvania

We were recently involved in a very controversial condemnation matter. We were retained by the Ludwig’s Corner Horse Show Association to challenge a condemnation filed by West Vincent Township. The Township passed a resolution and filed a declaration of taking to condemn 33 acres owned by the Association. The Association is a true treasure in the horse community as well as the community in general. A firestorm erupted and the Township agreed to rescind the condemnation.

I have seen governmental entities far too often become entrenched in their actions and irrationally refuse to reconsider their decisions.  Fortunately, the Township was an exception.

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The Pennsylvania Superior Court recently ruled that a home seller and agent can be sued for failing to disclose a murder/suicide in a house for sale. In Milliken v. Jacono, homebuyers sued sellers and agents for failing to disclose that a murder/suicide of a husband and wife had occurred in the house. The homebuyers alleged various categories of fraud and misrepresentation regarding the sale including the violation of Pennsylvania’s Real Estate Disclosure Law.

The homebuyers alleged the suicide/murder was a material defect because it had a substantial impact on the value of the house.  Citing reports from two real estate appraisers, the homebuyer alleged that the murder/suicide lowered the value of the property between ten and fifteen percent. The Pennsylvania Superior Court held that the murder/suicide could qualify as a material defect requiring disclosure under the Real Estate Seller Disclosure Law (RESDL). A material defect is defined as, among other things, “A problem with a residential real property or any portion of it that would have a significant adverse impact on the value of the property or that involves an unreasonable risk to people on the property.” The Superior Court found that this was sufficient evidence to submit the issue to a jury for a factual determination.

The homebuyer also that had she known of the murder suicide, she would not have purchased the property. The Court held that this was also a basis to submit the fraud and misrepresentations claims to the jury.

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Philadelphia City Council voted to adopt a new zoning code Dec. 15, 2011. Mayor Nutter will sign the zoning code bill on Dec. 22, 2011. The new code will become effective in August 2012.

Philadelphia’s current zoning code was adopted in 1962 and has been amended several times. It has become complex and cumbersome. The new zoning code is simplified and organized in a way that will make it easier for individuals to develop in the City. For example, rather than 55 zoning classifications and dozens of overlay districts, the new zoning code identifies only 35 zoning classifications and 12 overlay districts. All of the existing zoning districts will be converted to a new corresponding district. There have not been any substantive changes to the zoning designations. Three new zoning districts were created that do not have existing corresponding districts: CMX-2.5 (Commercial Mixed Use 2.5), IRMX (Industrial Residential Mixed Use) and SP-AIR (Airport Special Purpose District).

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A federal appeals court recently held that a condemnee who successfully challenges a taking may be entitled to “just compensation” during the period between the filing of the declaration of taking and the revesting of title. In R&J Holding Company v. Montgomery County RDA, the property owner successfully challenged the taking of its property. The property owner was awarded its attorneys’ fees and expenses as mandated by Pennsylvania law in cases where there are successful condemnation challenges. That challenge took approximately five years including a review by Pennsylvania’s appellate courts.
 

The condemning authority, the Montgomery Count RDA, held title to the property throughout the state court action. The property owner filed an action in state court alleging it was deprived of certain fundamental property rights, including the right to improve the property and the right to sell the property during the pendency of the condemnation challenge. The Pennsylvania Commonwealth Court reversed rejected the claim holding that the Pennsylvania Eminent Domain limits a prevailing condemnee's recovery to professional fees and expenses. The Commonwealth Court's opinion never explicitly addressed whether denying just compensation violated the state or federal constitutions.

The property owner then filed suit in federal court seeking the “just compensation” promised by the Fifth Amendment. The RDA argued that there was no taking and that without an accompanying attempt to take physical possession of the property, transfer of title to the government does not constitute a taking. The Third Circuit rejected the argument finding that it was “a per se” taking because title to the land actually passed upon the filing of the Declaration of Taking.
The Third Circuit did not elaborate as to the nature of the “just compensation,” however. It will be interesting to monitor this case as it proceeds.
 

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73% of Mississippians voted in favor of an eminent domain initiative earlier this month. Initiative #31 amends the Mississippi Constitution to prohibit state and local government from taking private property by eminent domain and then conveying it to other persons or private businesses for a period of 10 years after acquisition. Exceptions from the prohibition include drainage and levee facilities, roads, bridges, ports, airports, common carriers, and utilities. The prohibition would not apply in certain situations, including public nuisance, structures unfit for human habitation, or abandoned property. Mississippi is the 44th state to restrict the use of eminent domain for private development. 

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New York's top court on Tuesday ruled that the state attorney general may pursue allegations that First American Corp. and its former subsidiary eAppraiseIT inflated property appraisals under pressure from client Washington Mutual. However, the court ruled only on the issue of jurisdiction and not the merits of the attorney general's claims. Then-Attorney General Andrew Cuomo brought the 2007 civil suit alleging the practice contributed to the national subprime mortgage crisis. The Court of Appeals concluded federal law and regulations do not pre-empt the state claims alleging fraud and violations of real estate appraisal rules. The 1989 Financial Institutions Reform, Recovery and Enforcement Act, which followed the federal savings and loan crisis, “sanctions the establishment and use of state agencies dedicated to certifying and licensing appraisers and delineates requirements for using these appraisers in federally related transactions,” Judge Carmen Beauchamp Ciparick wrote.

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The Commonwealth Court of Pennsylvania recently addressed the requirement that a condemnor must initiate the condemnation action within one year of the action authorizing the condemnation. In In Re: Condemnation by the Redevelopment Authority of the City of Allentown, the condemned property was determined to be blighted on March 8, 2004. On June 14, 2005, the Redevelopment Authority of the City of Allentown (RACA) adopted a resolution authorizing the executive director to acquire the property through eminent domain. On June 15, 2005, the Allentown City Council adopted a resolution authorizing RACA to acquire the property through eminent domain, if necessary.

The RACA waited until September 15, 2008 to file the Declaration of Taking – the filing that initiates a condemnation case in PA. Section 302(e) of the PA Eminent Domain Code, 26 Pa.C.S. § 302(e), states: “The condemnor shall file within one year of the action authorizing the declaration of taking, a declaration of taking covering all properties included in the authorization not otherwise acquired by the condemnor within this time.”

The Condemnee challenged the taking alleging that the Declaration was not filed within the required year from the date of authorization. On December 3, 2008, the RACA adopted another resolution continuing the authorization of the taking of the property. On December 11, 2008, the RACA filed an Amended Declaration of Taking. Condemnee challenged the Amended Declaration. The Court of Common Pleas of Lehigh County sustained the challenge to both the Declaration and Amended Declaration.

On appeal, the Commonwealth Court affirmed the trial court’s ruling. The RACA argued that amended declarations may be filed as of course without instituting new court actions in order to cure technical defects. The Court rejected that argument and held that the the RACA, “only had one year from the date of the resolution to file its Declaration. Clearly, it did not do so. There is nothing in [The Code] giving RACA authority to extend the one year time period by adopting another resolution ‘continuing’ the authority to condemn.”
 

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The Appraisal Foundation announced Oct. 13 that it has released its 2012-13 edition of the Uniform Standards of Professional Appraisal Practice. “USPAP” includes a variety of standards of professional practice for all appraisal disciplines. The 2012-13 edition will become effective Jan. 1, 2012, and will be valid for two years. The new edition of USPAP includes the standards of professional practice, guidance from the Appraisal Standards Board and a host of changes and revisions. Copies of the 2012-13 edition are available for purchase at www.appraisalfoundation.org

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According to Lender Processing Services - a data and analytics firm that tracks monthly statistics in its loan-level database of nearly 40 million mortgages - mortgage delinquencies fell slightly to 8.09 percent in September from August. The mortgage delinquency rate fell 0.5 percent from the previous month and was 12.7 percent lower than at the same point last year. The foreclosure pre-sale inventory rate was 4.18 percent, up 1.7 percent from August and an increase of 8.9 percent from a year ago.

Data showed that 2.17 million homes were currently in pre-foreclosure and that more than 6.3 million properties nationwide were in foreclosure. Florida, Illinois, Mississippi, Nevada and New Jersey had the highest percentage of noncurrent loans. Alaska, Montana, North Dakota, South Dakota and Wyoming had the lowest percentage of noncurrent loans, which includes delinquencies and foreclosures as a percentage of active loans in each state.

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A Philadelphia judge recently dismissed a challenge by a group of Philadelphia taxpayers challenging the city’s tax assessment practices. The suit alleged that properties were “over assessed” due to alleged illegal and unconstitutional City Property Tax practices. The complaint took issue with the citywide moratorium on property tax reassessments that went into effect in January 2010. It also alleged that the City violated the General County Assessment Law and PA Constitution. The taxpayers accused the city of unequal taxation of similar properties, spot reassessment, failure to assess all properties at the actual values, failure to perform annual assessments and failure to correct all assessment errors.

Trial Judge Idee C. Fox dismissed the suit. She found that the plaintiffs did not prove the necessary element that their properties were assessed at a higher level than the majority of other properties in their municipality. Therefore, the Court ruled, the plaintiffs cannot claim to have suffered an “adverse action” and have no standing.
 

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The United States Tax Court recently issued an opinion that contains valuable lessons for any forum. Real estate valuation litigation regularly occurs in the Tax Court.

In Boltar LLC v. Commissioner, the Tax Court granted the government’s motion to strike the taxpayer’s appraisal because it was “unrealiable and irrelevant.” In that case, the IRS and the taxpayer disagreed as to the value of a donated conservation easement on real property located in Indiana. The Court ruled that the taxpayer’s appraiser used the wrong facts and standard in appraising the property and, therefore, struck the appraisal. The government’s notice of deficiency was upheld for the amount stated - only $42,400 out of a total $3,245,000 claimed as a charitable deduction on the partnership return.

Of particular interest was the Court’s harsh criticism of experts acting as advocates for their clients. It stated:

In most cases, as in this one, there is no dispute about the qualifications of the appraisers. The problem is created by their willingness to use their resumes and their skills to advocate the position of the party who employs them without regard to objective and relevant facts, contrary to their professional obligations

In addition, the cottage industry of experts who function primarily in the market for tax benefits should be discouraged. Each case, of course, will involve exercise of the discretion of the trial judge to admit or exclude evidence. In this case, in the view of the trial Judge, the expert report is so far beyond the realm of usefulness that admission is inappropriate and exclusion serves salutary purposes.

The importance of the credibility of experts – and attorneys – cannot be overstated. It is critical to resist the temptation to push experts to unsupportable positions. This is an important lesson for attorneys, experts and clients.
 

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Real estate valuation occurs in a variety of forums and we often find ourselves playing “away games.” Recently, I assisted my partners in our Las Vegas office in a bankruptcy case in which the debtor – our client – owned a number of commercial properties. Las Vegas’ real estate market is one of the hardest hit areas of the country. I was brought in to assist in establishing the value of ten properties in the context of the bankruptcy proceeding.

Several major lending institutions held mortgages on these properties including Wells Fargo, Bank of America and German America. Initially, the valuation “spread” – the difference between the parties’ alleged values of the various properties – was over $7 million. However, we were able to settle the valuation issue for half of the properties. As to the remaining five properties, we alleged that the aggregate value of the properties was $10,450,000. The lenders alleged it was $14,015,000. After three days of hearings, the Court ruled that the value was $11,000,000. Our client was very pleased with the results.

There were a number of interesting aspects of the case. First, it was important to understand the legal nuances of bankruptcy valuation. Whether you are litigating valuation in the context of eminent domain, tax assessment or any other area of the law, it is critical to understand the law in that area. It is also critical to understand the venue of the litigation including the judge, jury or panel that will be deciding the case. In this case, the Bankruptcy Judge, The Hon. Judge Bruce A. Markell, has extraordinary experience in the appraisal of real estate. Therefore, I made sure to tailor my case to his level of expertise.
 

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PennDOT has shown signs that it is pursuing property acquisitions for Route 422 projects in Berks and Montgomery Counties (PA). PennDOT published a notice on September 3, 2011 in The Pottstown Mercury newspaper that it intends to acquire property in Lower Pottsgrove (PA) Township for that portion of its 422 reconstruction project. Property owners are also receiving notices of potential acquisition for various other 422 projects.

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The U.S. Supreme Court has been asked to decide “[w]hat category of takings are subject to heightened judicial scrutiny, and when is the risk of undetected favoritism so acute that an exercise of eminent domain can be presumed invalid?” In C & J Coupe Family Ltd. Partnership v. County of Hawaii, the County of Hawaii sought to condemn private property for the purpose of constructing a highway. The property owners argued that the alleged public use - a highway bypass - was merely a “pretext” for a conferring a benefit upon a developer of a luxury residential project. The Hawaii Supreme Court rejected this argument.
The property owners filed a petition for writ of certiorari – the mechanism to have a case heard by the U.S. Supreme Court – arguing that “Since Kelo, the lower courts have been unable to
settle on consistent or clear standards for when the public purpose supporting an exercise of eminent domain is pretextual, or in what situations the ‘risk of undetected impermissible favoritism’ is such that a presumption of invalidity or a heightened standard of review is warranted.” If cert is granted, this will be the first time the Court will consider these issues since Kelo v. City of New London.
 

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