Eminent Domain and Fair Market Value in a Depressed Real Estate Market (2014)

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CONTENTS I. Introduction, 3 II. Effect of the Financial Crisis on Property Values, Financial Institutions, Property Owners, and Transportation Departments, 4 A. The Emergence and Scope of the Financial Crisis, 4 B. The Effect on Real Property Values, 4 C. The Effect on Financial Institutions, 5 D. The Effect on Property Owners, 6 E. The Effect on Transportation Departments, 6 III. The Use of Fair Market Value to Determine Just Compensation, 7 IV. The Determination of Fair Market Value, 8 A. Introduction, 8 B. Comparable Sales, 9 C. Income Approach, 9 D. Reproduction or Replacement Approach, 10 V. Whether the Rule of Just Compensation Allows for Any Flexibility When Real Estate Values Are Depressed, 12 A. Avoiding “Manifest Injustice,” 12 B. Full Indemnification, 14 C. Fairness and Equity, 14 D. Judicial Discretion, 15 VI. Determining Just Compensation During Depressed Market Conditions, 15 A. Introduction, 15 B. Valuation During Temporary and Permanent Depressions in the Market, 16 C. Valuation Based on a “Normal” Market, 17 D. Relevancy of the Price Paid by an Owner for the Property, 19 E. Admissibility of a Property Owner’s Testimony as to Value, 20 F. Other Issues Affecting Valuation, 20 G. Exclusion of Project Influence, 23 H. Counterarguments to Valuing Property Any Differently Because of the Existence of a Depressed Real Estate Market, 25 VII. The Use of “Valuation Mechanisms” as Alternative or Supplementary Adjustments, 26 A. Introduction, 26 B. Value of the Condemnor’s Gain from the Taking, 26 C. Value of the Harm to the Property Owner, 27 D. Highest and Best Use, 27 E. The Time of the Taking, 28 F. Impact of Precondemnation Activity on Value, 29 VIII. The Roles of Distributive Justice and Environmental Justice in Eminent Domain and Just Compensation, 30 A. Distributive Justice, Environmental Justice, and Just Compensation, 30 B. Compensation for an Owner’s Subjective Property Rights, 32 C. Additional Losses or Values that May Be Compensable, 34 D. Proposals for Incorporating Distributive Justice Principles in Just Compensation, 34 IX. Constitutional and Statutory Amendments Authorizing the Payment of Additional Compensation, 36 A. Additional Compensation for the Taking of a Primary Residence or Homestead, for Heritage Value, or for Takings for Economic Development, 36 B. Compensation for Losses Related to a Business Conducted on the Property, 38 C. Compensation for the Purchase of Comparable Property, 39 D. Voluntarily Paying More than Fair Market Value, 39 X. Takings of Mortgaged Property with Negative Equity, 40 A. Introduction, 40 B. Calculation of Replacement Housing Payments and FHWA’s Waiver of 49 C.F.R. Section 24.401(b)(1), 40 C. The Use of Eminent Domain to Take Underwater Mortgages, 43 XI. Payment of Relocation Expenses, 45 A. Uniform Relocation Assistance and Real Property Acquisition Policies for Federal and Federally Assisted Programs Act, 45 B. State Laws Authorizing Payment of Relocation Expenses, 45 XII. Federal Reimbursement of Payments in Excess of Fair Market Value, 46 XIII. Conclusion, 46 APPENDIX A: Survey Questions, A-1 APPENDIX B: Summary of Transportation Departments’ Responses to the Survey, B-1 APPENDIX C: Transportation Departments Responding to the Survey, C-1