City’s reduction of assessed value for condemnation calculation “beyond anything that appears reasonable”

by Rachel Greifenkamp

Iyad Nabham v. City of Beloit

(Wisconsin Court of Appeals, April 24, 2014)

In June of 2011 the City of Beloit issued a condemnation order on property owned by Iyad Nabham after an inspection in March 2011 during which several substantial code violations were identified. This was despite the fact that an inspection four months prior found only “minor violations.” The building in question houses a retail business and five apartment units, the City of Beloit ordered Nabham to raze the structure within 30 days as they had found that the estimated repair cost to bring the building up to code was $63,000 and the property’s value was $49,300. Nabham contested the condemnation order and was granted a temporary injunction and trial in circuit court.

The violations found in March had existed for many years and the city offered no explanation for why the violation suddenly required immediate attention. The City of Beloit also did not justify why the value of repairs was increased from the inspector’s estimate and the property’s assessed value was cut in half. According to the circuit court judge, the value of the property was cut in half between 2007 and 2011 for the purpose of allowing the City to claim that repairs would cost 50% of the assessed value. Finally, the inspector’s report contained several unnecessary references to Nabham’s Middle East ethnicity. It was concluded that such details suggested that the city had an interest in removing the building because of the ethnic background of the people living there rather than code violations.

The circuit court action concluded with the injunction being made permanent, the repairs being deemed unnecessary, and a reassessment of the building’s value. The City of Beloit appealed. The Wisconsin District IV Court of Appeals affirmed the circuit court, stating:

“Overall the evidence supports the circuit court’s credibility determination and findings.  The circuit court found that there were no violations needing repair and that the City suddenly reduced the assessed value of the property “beyond anything that appears reasonable.”  Not only was there no basis for the City’s declaration that the building was “so out of repair as to be dangerous,” but there also was no basis to claim needed repairs exceeded 50% of the assessed value…We conclude that the circuit court’s findings are based on a credibility assessment and those findings support a determination that the condemnation order was unreasonable.  We affirm the injunction order.”

The city was ordered to withdraw the condemnation order and begin the inspection process again.

Missouri Heritage Value statute declared constitutional; family awarded $2 million in eminent domain proceeding

by Gary Taylor

St. Louis County v. River Bend Estates HOA
(Missouri Supreme Court, September 10, 2013)

The Missouri Heritage Value statute (statute) was adopted by the Missouri legislature in 2006.  It provides for additional compensation for the exercise of eminent domain over homesteads, and properties held within the same family for 50 or more years.  If a property has been owned within the same family for 50 or more years, “just compensation” is determined by statute to be fair market value plus an additional 50 percent (“heritage value”), thus equaling 150 percent of fair market value.

St. Louis County condemned 15 acres of property for a highway extension project.  The property was deeded to Arthur Novel in 1904, who farmed it with his wife until their deaths in 1968.  It stayed in the family and was owned by the Novels’ descendents until the condemnation proceedings.  The condemnation court awarded the descendents $320,000 for acquisition of the property, and an additional $160,000 for heritage value, resulting in a total award of $480,000.  The descendents appealed, and at trial the jury awarded them $1.3 million, to which the court added $650,000 for heritage value for a total award of approximately $2 million (including interest).  The county appealed.  Because the challenge was to the constitutionality of the statute the appeal went directly to the Missouri Supreme Court.

The bulk of the opinion addressed numerous evidentiary and procedural issues, but the Court did eventually address the County’s  three constitutional challenges: (1) the statute impermissibly altered the judicial definition of “just compensation” by permitting the addition of heritage value to fair market value; (2) the statute requires condemning authorities (in this case, the County) to expend public funds without a public purpose in violation of the Missouri Constitution; and (3) the statutory requirement that a judge compute heritage value invades the province of the jury to determine just compensation – also in violation of the Missouri Constitution.

Definition of “just compensation.”  The Missouri Constitution declares that “private property shall not be taken or damaged for public use without just compensation.” The US Supreme Court has interpreted “just compensation” to mean the fair market value of the property at the time of the taking.  The County argued that constitutional interpretation is the province of the judiciary, not the legislature.  The Court did not disagree; noting, however, that the statute does not alter the definition of “just compensation,” but rather “provid[es] additional benefits to certain property owners whose real property is taken for public use.” It cited US Supreme Court cases that “support the proposition that a legislature may compensate losses and damages beyond those traditionally included in its interpretation of ‘just compensation.'”  “‘Just compensation’ is a minimum measure that must be paid, not a maximum one.”

Expenditure of public funds.  Missouri Constitution Article III, Section 38(a) states that the legislature “shall have no power to grant public money or property …to any private person, association or corporation….”  The County asserted that compensation payments beyond the constitutional minimum serve no public purpose and are therefore unconstitutional.  To determine whether there is sufficient public purpose behind a grant of public money the Missouri courts have employed the “primary effect” test.  This test allows expenditures whose primary object is to serve a public purpose, even if it involves as an incident an expense which, standing alone, would not be lawful.  The Court determined that the primary purpose of the expenditure was to acquire property for a public purpose, and that the payment for heritage value is merely incident to that public purpose.

Computation by judge of heritage value.  Missouri Constitution Article I, Section 26 requires that just compensation “be ascertained by a jury.”  The Court quickly dismissed this argument by noting its previous declaration that heritage value is a payment in addition to “just compensation” – not part of the just compensation calculation.

The Court upheld the roughly $2 million jury award.

Contract for deed purchaser not “owner” for condemnation purposes

by Kaitlin Heinen

City of Cloquet v. Julie Crandall, et al.
(Minnesota Court of Appeals, December 10, 2012)

Kerry and Julie Crandall operated an auction business out of a downtown building when the City of Cloquet took the building’s parcel by condemnation for the construction of a new human services building. The district court granted title to the City in July 2010. Three court-appointed commissioners determined that $198,000 was fair compensation under a fair-market-value analysis and under a minimum-compensation analysis under Minnesota Statutes section 117.187. When the parcel was condemned, the Crandalls had been in the process of purchasing it under contract for deed. In August 2010, the contract for deed sellers executed a satisfaction, stipulating with the Crandalls that the contract was fully paid. In September 2010, the district court recognized the satisfaction and entered a stipulation order observing that the sellers disclaimed any continuing interest in the property.

Before the district court trial, the City unsuccessfully moved to exclude any evidence bearing on a minimum-compensation analysis, arguing that the Crandalls were contract for deed vendees rather than owners. Appraiser John Vigen testified as an expert witness for the City, stating that the “Carlton property” was comparable to the Crandalls’. The Carlton property’s building was older, smaller, poorly constructed, and had limited access by comparison, but Vigen testified that it was comparable because the Crandalls’ auction business did not use all of the space available on the parcel and because the Carlton property zoning classification allowed it to be used as an auction business. To the contrary, the Crandalls’ real estate expert David Reach testified that the small size, poor condition, and limited access made the Carlton property unsuitable for the Crandalls’ business. Instead, he identified the Kolar property (formerly a car dealership) as comparable, though it was much larger and more expensive. Reach testified that it was comparable because the Kolar property included a building with floor space equal to the Crandall property’s building. The district court found that the Carlton property was a comparable property, thus upholding that the Crandalls were entitled to $198,000 in compensation. Both the Crandalls and the City appealed to the Minnesota Court of Appeals.

The Minnesota Court of Appeals first addressed the September 2010 order recognizing the August 2010 satisfaction of the contract for deed. The Crandalls claim that the order’s stipulated satisfaction functioned as an assignment to them of vendors’ rights, vesting in them a fee title interest in the property. However, neither the satisfaction nor the order is an assignment. An assignment requires the grantor’s manifest intention to assign a specific right. The satisfaction of the contract for deed only releases the Crandalls from contract obligations. Further, the district court had already transferred title to the City in its July 2010 order. When the satisfaction was executed in August, the vendors had no title to transfer to the Crandalls. So the Minnesota Court of Appeals held that the September order did not grant vendors’ rights to or vest fee title to the property in the Crandalls.

Both the Crandalls and the City argue that the district court misinterpreted section 117.187, which states: “For the purposes of this section, ‘owner’ is defined as the person or entity that holds fee title to the property.” The Crandalls argued that they are entitled to minimum compensation as contract for deed vendees. Though section 117.187 is restricted to “owners,” the Crandalls claim that contract for deed vendees are still considered owners. Section 117.036, enacted at the same time as section 117.187, defines “owner” as “fee owner, contract purchaser, or business lessee who is entitled to condemnation compensation under a lease.” This section indicates that the legislature classifies fee owners and contract purchasers separately, but “contract purchaser” is not expressly defined nor is the term used elsewhere in regards to real estate. The Minnesota Court of Appeals concluded that “contract purchaser” must include contract for deed purchasers. To interpret “fee title” owner in section 117.187 to include contract for deed vendees would mean that “contract purchaser” in section 117.036 is superfluous. So it must be inferred that the legislature intended to exclude contract for deed purchasers from the scope of section 117.187. If the legislature wanted to include contract purchasers in section 117.187,  it would have included them explicitly. In fact, “fee owners” traditionally includes only those holding legal title.

Furthermore, section 507.092 states that “[n]o contract for deed or deed conveying fee title to real estate shall be recorded…” The separate specification of “contract for deed” and “deed conveying fee title” shows that the legislature does not intend for a contract for deed to include fee title. Additionally, section 117.187’s history suggests that the legislature intended to exclude contract for deed vendees. When the Eminent Domain Conference Committee added the definition of “owner” to section 117.187, committee members specifically discussed the meaning of the language at issue here.  Legislative counsel Bonnie Berezovsky asserted that “fee owner would not include a purchaser under a contract for deed.” Although the opinion of legislative counsel is not proof of legislative intent, the court found her comment persuasive as a legal explanation of what is  and is not included as an “owner” in section 117.187.

Because the Crandalls were not fee title owners entitled to minimum compensation under section 117.187, the district court erred by denying the City’s motion to exclude the Crandalls’ minimum-compensation evidence at trial. The Minnesota Court of Appeals reversed and remanded the district court’s ruling.

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