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In 2005, the US Supreme Court issued one of its most controversial decisions. In Kelo v. City of New London, the Court held that it was not unconstitutional to use the power of eminent domain to take homes and other private property and transfer the property to private entities for economic development. It found that economic development was a “public purpose” which, therefore, satisfied the Fifth Amendment “public use” requirement.

Although the taking was held to be constitutional, the extraordinary public reaction caused the City of New London to abandon the project. 8 years later, the property remains vacant. Last year, New London Mayor Daryl Justin Finizio issued an apology to former Fort Trumbull property owners and announced a restructuring of the New London Development Corp. The NLDC was renamed the Renaissance City Development Association, and earlier this month, the leadership of the board changed. Linda Mariani, a lifelong resident of the city and an attorney, was elected president. According to the New London newspaper The Day, The mayor wants the land that was taken by eminent domain to be set aside and used only for public projects. Possibilities include a desalinization plant, a wind farm and a solar field. A municipal parking garage with ground-floor retail is also a possibility, he said.

 

The mayor wants the land that was taken by eminent domain to be set aside and used only for public projects. Possibilities include a desalinization plant, a wind farm and a solar field. A municipal parking garage with ground-floor retail is also a possibility, he said.
 

The New Jersey legislature has passed legislation somewhat restricting local governments’ use of eminent domain for private redevelopment. It also creates an alternative to condemnation for redevelopment projects.

S-2447, passed 36-1, was expressly designed to codify New Jersey Supreme Court’s decisions holding that the prior statutory standard for “blight” — that the property be in a "stagnant or not fully productive condition" — unconstitutional as applied. This legislation changes the requirement such that the property must be in an "unproductive condition."

The legislation also provides local governments with an option to undertake redevelopment without using the power of eminent domain. It now awaits Gov. Christie’s signature.
 

The House Judiciary Committee approved legislation by voice vote prohibiting state and local governments that receive federal economic development funds from using eminent domain to transfer private property from one private owner to another for the purpose of economic development. The “Private Property Rights Protection Act” (H.R. 1944) is a direct, albeit delayed, response to the 2005 Supreme Court decision in the case of Kelo v. City of New London, which held that it was not unconstitutional to condemn property for economic development. The Private Property Rights Protection Act also passed the House of Representatives in the 109th and 112th Congresses but subsequently died and was never enacted into law.
 

In a dramatic change in eminent domain law, the PA Supreme Court has now opened the door, in certain circumstances, for the use of purchase offer amounts in valuing condemned properties. Prior to this decision, the general law in PA was that offers could only be used to establish demand for a particular use but the offer amounts were inadmissible. However, the PA Supreme Court has now held that the offer amount itself could be admissible.

In Lower Makefield Townhip v. Lands of Dalgewicz, a township condemned a 166-acre farm for a public golf course. During the jury trial, the property owner testified regarding interest shown by several developers. He described some of the offers received including an agreement of sale with Ryland Homes for $5.1 million and a sales agreement with Toll Brothers for $7 million, contingent upon the condemnation being overturned. The property owner also testified to an offer from Pulte Homes, Inc., including the $8 million offer price and the offer letter was also introduced into evidence.

The condemnor objected, arguing the offer was inadmissible as it did not result in a sales agreement and any testimony concerning the offer price would be irrelevant and prejudicial. The trial court overruled the objection stating that it would be appropriate to “let in what was going on with this piece of land in terms of developers from a reasonable time before to a reasonable time after the taking.” The trial court observed the Township could cross-examine Mr. Dalgewicz on the nature of the offer, and that its evidentiary value was “something that should be argued to the jury. The jury determined the fair market value of the property was $5,850,000. On appeal, the Commonwealth Court affirmed.

The Supreme Court held:

[W]e hold there is no bright-line rule prohibiting testimony of bona fide offers into evidence, especially, as in the present case, when a contract has been signed and the offer is used to show that contract’s reasonableness. In so holding, we are guided by the principle that “[t]he admission or exclusion of evidence is within the sound discretion of the trial court[.]” Whether an offer is bona fide and whether it should be admitted are questions best left to the trial court as the gatekeeper of the evidence.

The Court explained the prior law regarding the admissibility of offers as follows:

This Court has held offers to buy property subject to condemnation proceedings are inadmissible to prove the value of the property. This limitation arose from the concern “testimony of the amount of an offer by one who did make it would offend the ‘[h]earsay’ rule, and the admission of the testimony by the offeror himself would lead to the investigation of collateral matters, and confuse the main issue.” In Anderson, this Court further explained that inquiring into the amount of purchase offers “would introduce wholly collateral issues as to the bona fides of the alleged offer, the conditions under which and by whom it was made and all of a host of other unrelated issues[.]” (citations omitted).

In breaking from this prior law, the Court relied upon Section 1105(1) of the PA Eminent Domain Code which provides a qualified valuation expert may “state any or all facts and data which the expert considered in arriving at an opinion[.]” Further, § 1105(2) provides a qualified valuation expert may “testify in detail as to the valuation of the property on a comparable market value, reproduction cost or capitalization basis[.]” Id., § 1105(2). The Court explained “The General Assembly makes clear this section is intended “to change existing law which severely restricts the testimony of the expert witness on the ground that ‘collateral issues’ are introduced.” Id., § 1105(2), Joint State Government Commission Comments — 1964. The General Assembly’s liberalization of the Eminent Domain Code explicitly permits testimony that may introduce “collateral issues” in direct contrast to the reasoning relied on in Kelly and Anderson; thus, continued reliance on their dictates is misplaced.”

In this case, the Court found that since the Pulte offer constituted “data which the expert considered in arriving at an opinion,” it could be introduced through the expert’s testimony. The Court then addressed “the relevancy and speculative nature of offers” and opined, “we agree with the Commonwealth Court that this particular offer was relevant because it helped prove the reasonableness of the Toll Brothers offer and it was probative of the fair market value of the property.” It further noted that the offer was made by “a large, sophisticated developer and home builder with a nationwide presence; there is no evidence to suggest its offer was not genuine, issued in bad faith, or an attempt to inflate the value of the property. Testimony, including from appellant’s own expert, established the process which a large developer, such as Pulte Homes or Toll Brothers, undertakes before submitting an offer. This was not some ‘fly by night’ contractor rushing to make a bid and betting the farm on the success of a development it might not have the resources to complete.”

Although this case does not permit evidence of offer amounts in every instance, it still is a major change from existing law.
 

The Department of Housing and Urban Development may issue eminent domain related rules. At a recent House Financial Services subcommittee hearing, Reps. Blaine Luetkemeyer, R-Mo., and Edward Royce, R-Calif., noted counties in their states are considering using eminent domain to acquire private-label underwater mortgages. They also noted that FHA has barred Fannie Mae and Freddie Mac from refinancing loans seized through eminent domain. However, FHA does not have a similar policy. HUD deputy assistant secretary Charles Coulter stated that "We will certainly take a look at it and consider something similar.”

Paula Konikoff, JD, MAI, chair of the Appraisal Institute’s Professional Standards and Guidance Committee recently discussed the 2014-15 USPAP updates, including the process the Appraisal Standards Board used to adopt the latest edition of USPAP, the new Report Options that will be part of the 2014-15 edition of USPAP, and other changes made that might impact appraisers.
The Appraisal Standards Board adopted the 2014-15 edition of the Uniform Standards of Professional Appraisal Practice, known as USPAP, in February of 2013.
Two report options will be presented in the 2014-15 edition of USPAP, thus making Standards 2 and 8 conform to the existing Standard 10:
■Appraisal Reports will have the same requirements as the current Summary Appraisal Report; and Restricted Appraisal Reports will have the same requirements as the current Restricted Use Appraisal Report.
■The current Self-Contained Appraisal Report will not be an option in the 2014-15 USPAP.
Different language will be required regarding current or prospective interest and prior services, clarifying that this disclosure must be made in the Certification for “each” subsequent appraisal or appraisal review assignment. The Appraisal Standards Board did heed comments from the Appraisal Institute and other organizations and limited the additional language that is now required.
The Appraisal Standards Board adopted several changes that are intended to clarify language without making substantive changes, including the: Competency Rule; the preamble; and Standards Rules 3-5. The proposed changes to the Record Keeping Rule were dropped, based on comments from the Appraisal Institute and others.
 

The Illinois Senate recently approved a casino bill which would provide casinos with the power of eminent domain. If it passes, SB 1739 would amend the state’s Eminent Domain Act:
 

“The following provisions of law may include express grants of the power to acquire property by condemnation or eminent domain: Chicago Casino Development Authority Act; City of Chicago; for the purposes of the Act”
 

The legislation further provides that acquisition of property for a casino could be considered a “public use”:
 

“For the lawful purposes of this Act, the City may acquire, by eminent domain or by condemnation proceedings in the manner provided by the Eminent Domain Act, real or personal property or interests in real or personal property located in the City, and the City may convey to the Authority property so acquired. The acquisition of property under this Section is declared to be for a public use.”
 

The bill passed 32-20 in the state Senate on May 1 and is now being considered by the House Executive Committee.
 

The New Jersey General Assembly overwhelmingly passed a bill intending to “clarify” the use of eminent domain by a municipality and amending the due process provisions of the Local Redevelopment and Housing Law (LRHL) that fall within the area of eminent domain, according to the bill’s sponsors. Under the bill, A-3615, a municipality condemn properties if an area is determined to be in need of redevelopment and after the municipality follows established criteria in making such a determination. The bill provides notification requirements and rights of property owners if a town determines an area to be a focus of redevelopment and authorizes the taking of property by condemnation. The new provisions require property owners within such an area to be advised of the municipality’s intention of whether it will use or not use eminent domain at the outset. Unless a municipality properly notifies owners, the LRHL will not authorize the use of eminent domain.

The General Assembly passed the bill 78-0 with 2 members abstaining. The bill now will be reviewed by the NJ Senate.
 

The Georgia Real Estate Appraisers Board recently adopted its final regulations regarding standards for developing and reporting an “evaluation appraisal.” The regulations state that, where permitted by federal law and policies, a state-licensed or certified appraiser performing an evaluation appraisal need not comply with the Uniform Standards of Professional Appraisal Practice.

The new regulations state that a licensed or certified appraiser may offer “an appraisal which is limited in its scope and development” where an appraisal by a licensed or certified appraiser is not required by federal law. These situations include transactions with a value less than or equal to $250,000, transactions where there is no advancement of new money other than funds necessary to cover reasonable closing costs and transactions with business loans with a value equal to or less than $1 million in which rental income from the property is not the primary source of repayment.

The regulations contain a list of approximately 20 items that a certified appraiser must include in each evaluation appraisal.

Also significant: the regulations state that the evaluation must contain “an estimate of the property’s market value” and that “a valuation that does not provide a property’s market value or sufficient information and analysis to support the value conclusion is not acceptable as an evaluation appraisal. While a broker price opinion, a competitive market analysis, an automated valuation model and a tax assessment value may be useful in developing an evaluation appraisal, the information obtained from these methods of valuation is insufficient standing alone to meet all of the criteria necessary to be an evaluation appraisal.”
 

Forty-two U.S. appraisal firms announced March 18 that they now are operating as Valbridge Property Advisors. The new firm is comprised of independent, local-market valuation firms with each office run by the local practice leader who must hold an MAI designation of the Appraisal Institute.

The new firm will specialize in office, industrial, retail, multifamily, hospitality, recreation and other special-purpose property types, and the MAI designation is held by appraisers who are experienced in the valuation and evaluation of these types of properties, as well as by those who advise clients on real estate investment decisions.

The firm is shareholder-owned with a board of directors and officers, including Richard L. Armalavage, MAI, serving as president and chief executive officer. It is headquartered in Naples, Fla. “Client demand for a strong independent national commercial property appraisal services platform has driven the formation of Valbridge,” Armalavage said in a news release. “Valbridge will be able to maximize opportunities for clients by elevating industry standards for accuracy, integrity, reporting and technology in service to current and future clients.”