Real Estate Investing

Eminent Domain in Real Estate

May 16, 2024

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Eminent Domain 

Did you know that the federal government can acquire private property for public use? The history of eminent domain goes back to the Bill of Rights and the 5th Amendment, which outlines the government’s ability to do just that.  

So, what is eminent domain? In this article, we’ll explore this concept and the complete, partial, temporary, and regulatory takings that reshape property landscapes. We’ll discuss the compensation principles mandated by the Constitution for fairness in valuation, as well as the role that homeowners play in navigating the interplay between public good, civic development, and individual ownership rights. 

Eminent Domain Meaning 

What does eminent domain mean?  

Eminent domain refers to governmental authority to seize private property for public use, which involves various types of takings. These include complete, partial, temporary, and regulatory seizures. 

All kinds of private property are subject to eminent domain. Land is the main type of property seized, but eminent domain also covers airspace, copyrights, patents, and intellectual property. 

Just Compensation 

When the government invokes eminent domain, the owner of the property that was seized is paid for its value. This concept is known as ‘just compensation.’ Just compensation ensures property owners receive reasonable monetary payment for their seized property, considering factors like property improvements and damages. 

Just compensation is calculated by the government but based on the property’s fair market value. In other words, the property valuation assumes an open market and that no confounding factors are included, such as either party being forced or desperate to buy or sell. 

Types of Eminent Domain Takings 

As mentioned above, the four types of eminent domain takings include complete, partial, temporary, and regulatory seizures. 

Complete eminent domain takings refer to circumstances where the government takes the entire property or parcel of private land, whereas partial takings are when they only take a portion of the land. For example, if the government was building a highway but only needed a small part of the private land, that would be a partial rather than complete eminent domain taking. 

Temporary takings occur when the government seizes private lands for only a short time before returning them to their owner. This type of taking is common for construction projects, like building a new road or public building.  

Permanant takings are just as they sound—the government takes the private lands and uses it for their needs without ever returning the area to its original owner. 

Lastly, regulatory takings are takings in which the government regulates how a property can be used, such as through zoning. Although this isn’t a physical seizure of your property, regulatory taking does limit how you can use it, and therefore impacts the value of your property. Regulatory takings can be either total or partial. 

Understanding these distinctions is essential in navigating the complexities of eminent domain processes. 

What Happens if a Property Owner Refuses to Cooperate with Eminent Domain? 

What does eminent domain mean for homeowners who refuse to hand over their land?  

Eminent domain takings often create conflict between homeowners and governments, since the two parties must agree on the just compensation amount. This task can be quite difficult when many homeowners have an emotional investment into their family homes and may value it higher than the government who values property based on fair market value. 

When the homeowner refuses eminent domain or a fair market value for the citizen’s home cannot be decided, the government will file a lawsuit against the homeowner called a condemnation proceeding.  

A condemnation proceeding could force the homeowner and the government to argue why either party should have ownership of the land in court. The government must prove that acquiring the private land is necessary for public usage. It’s important to keep in mind that the government is typically favored in eminent domain cases as the term ‘public use’ and ‘public good’ are vague and wide-ranging.  

Another route some homeowners choose is to present the court with an appraisal for their home and challenge the compensation the government offered for it. The court will then decide whether your appraisal or the government’s is more accurate. 

Inverse Condemnation 

Inverse condemnation occurs when modifications to seized property negatively affect neighboring properties, leading those property owners to seek legal recourse for damages. According to the Owners’ Counsel of America, inverse condemnation is formally defined as “an intrusion on an owner’s property due to the actions of a governmental entity that results in a taking without payment of just compensation.” 

Even if the government does not invoke eminent domain on your property directly, your quiet enjoyment or property value may still be impacted negatively. Note that there doesn’t necessarily have to be a physical taking for a landowner to initiate inverse condemnation. Some government actions can infringe on private property rights without necessarily physically intruding. For example, if a government built a factory near a neighborhood that subsequently experienced increasingly polluted air, the presence of the factory would lower the values of their homes since location and the overall desirability of that neighborhood would decrease. These homeowners could file a lawsuit against the government and potentially receive compensation if the judge agrees. 

In this case, the government hasn’t infringed on the homeowners’ physical boundaries or taken a part of their land by building the factory next door. However, the homeowners could still argue in court that the government has taken unfairly from their property values.  

In inverse condemnation cases, the property owner(s) initiates the legal action. The landowner has the burden of proof: They must prove that the government has taken their property (or its value, use, etc.) without just compensation. If the court agrees, the landowner will be entitled to just compensation according to the value of the property.  

Recent Example of Eminent Domain 

In 2020, PennEast Pipeline Co., an LLC consisting of several regional energy companies, proposed a natural gas pipeline spanning 115 miles from Pennsylvania to New Jersey. The pipeline was approved by the federal government, allowing the company to invoke eminent domain to obtain land parcels along the pipeline’s route.  

The pipeline was challenged at the Supreme Court in PennEast Pipeline Co. v. New Jersey (2020), in which the State of New Jersey argued against giving up their parcels on the basis of sovereign immunity. New Jersey’s motion was originally denied, but after an appeal, the Third Circuit decided that New Jersey was indeed immune from private lawsuits as per the 11th Amendment. A few months later, PennEast Pipeline Co. withdrew its eminent domain claims on the land parcels owned by New Jersey. 

Balancing the Public Good with Property Rights 

Although New Jersey was able to subvert eminent domain by appealing to sovereign immunity, individual homeowners in the same situation may face more limited options. Although it is the government’s job to maintain the delicate balance between public good and property rights, in cases where the government deems your property necessary for public use, your rights may be at risk. 

While the Fifth Amendment guarantees just compensation, it’s essential to understand the fine line between public necessity and property ownership. If you believe your property rights have been unlawfully denied, you can explore legal avenues to negotiate fair compensation or contest the taking to offer yourself some protection. 

However, the unpredictability of government real estate seizures often remains a significant hurdle in safeguarding your property rights. Stay informed, seek legal counsel, and be prepared for potential eminent domain proceedings to navigate this complex landscape. 

Conclusion 

As a property owner, navigating the realm of eminent domain can be daunting. Understanding the different types of takings, just compensation requirements, legal challenges, and the balance between public good and property rights is crucial. 

Despite the complexities, staying informed and seeking legal counsel can help protect your interests. Remember, in the ever-evolving landscape of real estate, knowledge is power when it comes to eminent domain. 

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