Condemnation / Eminent Domain Attorneys

The government’s power of eminent domain can be intimidating to a Maryland property owner who is facing the prospect of condemnation or having his or her property acquired for a public project. The government’s acquisition of your property can be disruptive to your personal life or business. Worse, if the acquisition is being completed pursuant to the government’s "Quick Take" power, the legal transfer of title can happen long before you have received your just compensation.

For your free consultation, please call (410) 415-7071.

GUIDE TO CONDEMNATION PROCEEDINGS IN MARYLAND

Public Necessity

The government must identify a public need and determine that the acquisition of private property is necessary to satisfy that public need. For example, the State Highway Administration (“SHA”) determined that a deceleration lane was needed on Bel Air Road in order for drivers to safely turn into a new Wal-Mart. In this instance, public safety was facilitated by the installation of the deceleration lane.

Public hearings at which public necessity is discussed may take place. Property owners may be notified of the hearings. The SHA website along with the websites of the Maryland Transportation Authority (“MdTA”) and Maryland Transit Administration (“MTA”) are good resources and will provide the public with information about projects that may require the acquisition of private property.

Once the property needed is identified, the acquisition process starts.

Negotiations

The condemning authority (“condemnor”) is required to engage in good faith negotiations with a property owner. The condemnor provides written notice to the property owner that it intends to acquire the property. Usually, the notice includes an offer of just compensation and damages to the remainder, if any. The offer of just compensation is based on an appraisal that is typically provided to the owner. The condemnor is not permitted to threaten the property owner. In other words, the condemnor cannot tell the property owner that if they do not accept the condemnor’s offer, the condemnor will file a complaint for condemnation and a law suit will ensue. The condemnor typically uses right-of-way agents to conduct negotiations.

Filing
If the right-of-way agent is unsuccessful in acquiring the property, the condemning authority may file a land acquisition petition or a complaint for condemnation in the circuit court where the property is located.

Quick Take

State agencies and jurisdictions such as the State Roads Commission of the State Highway Administration (“SRC”), the Washington Suburban Sanitary Commission (“WSSC”), Baltimore City, Baltimore, Cecil and Montgomery Counties, have “quick take” authority. The property owner still has the right to a trial to determine the amount of just compensation to be paid for the acquisition.

In order to “quick take” a property, the condemnor must deposit into the court’s registry the amount of just compensation the condemnor believes is due the owner. Once just compensation is deposited, the date of the deposit is now known as the “date of valuation” of the property. Once just compensation is deposited, the condemnor has the right to enter upon the property and begin their project and the owner is entitled to withdraw the funds.

In traditional condemnation cases, the condemnor doesn’t take possession or pay any just compensation until a judgment is entered. The date of value in this situation is the date of trial.

Withdraw of Just Compensation

The owner may withdraw the funds deposited into court by filing a Petition to Withdraw and Proposed Order. The petition asks that the funds be disbursed to the owner. In many instances, there is more than one interested party, such as a mortgagee. If all interested parties consent to the petition, which requires obtaining the interested parties’ signatures, the funds will be disbursed pursuant to the proposed order.

Withdraw of the funds doesn’t impact the owner’s right to seek a higher value for the property. However, if a lower value is determined, the property owner would be required to pay the overage to the condemnor.

Appraisal

The condemning authority will hire an appraiser to value the property and opine how much should be paid. In order to effectively counter the condemning authority on this issue an owner should hire a quality appraiser.

The appraisal of real property is a complicated endeavor and requires the expertise of a licensed appraiser. Moreover, in a condemnation action, it is critical that the appraiser not only have the expertise to accurately estimate the value of the property taken and the damages caused to the remainder, but also have the ability to effectively communicate his or her opinion at trial to a jury.

In addition to an appraiser, it may be necessary for the owner to hire other experts, such as land planners and engineers, in order to provide the appraiser with the foundational information needed to accurately value the property, or address other issues affecting the property.

There are three methods of appraisal generally used to estimate the value of real estate: the market approach, the cost approach and the income approach.

a.             Market Approach

• Under the market approach, appraisers search for properties they feel are comparable to the property. They then use the sale prices of those properties to arrive at an estimate of value for the subject property.

• Since no two properties are exactly alike and because some of the dissimilarities between the appraiser’s “comparable” properties and the subject property may be significant, the appraiser makes adjustments to the sales prices of the comparable properties before using the prices to arrive at an estimate of value for the subject property.

• Adjustments may be positive or negative, depending on whether the appraiser views the comparable property as having superior or inferior characteristics when compared to the subject property. For example, if the appraiser believes that the location of the subject property is superior to that of an otherwise equally comparable property, the appraiser will likely conclude that the value of the subject property is higher than the amount that the comparable property.

b.             Cost Approach

Under the cost approach, the appraiser first estimates the value of the land as if the land were vacant. The appraiser then estimates how much it would cost to rebuild, at today’s prices, all of the improvements on the property. Then the appraiser estimates the amount by which the present improvements have depreciated and subtracts the depreciation from the cost of reconstructing the improvements new. The depreciated cost of reconstructing the improvements is then added to the land value to arrive at an estimate of all the property. The theory supporting the cost approach is that a potential buyer would not pay more for an improved property than it would cost to purchase vacant land and construct similar improvements.

                        c.             Income Approach

• First, the appraiser estimates how much the property would rent for in the open market. This is accomplished by identifying comparable rental properties and determining their rental rates. This supports an estimate for annual gross potential income.

• An amount for stabilized vacancy and collection is then calculated and subtracted from gross income to arrive at an estimate of adjusted gross income.

• The appraiser then estimates the annual expenses that would normally be incurred by the owner and subtracts the total amount of those expenses to arrive at an estimate of net operating income.

• If the owner’s property has a history of rental income and expenses, the appraiser will consider the actual income and expense data. Adjustments may be made to actual income and expenses to stabilize them over time. For example, a new roof would not be installed every year. Therefore, the cost of a new roof, or similar expense, would be allocated over the expected life of the roof.

• Finally, the appraiser converts his estimate of net operating income to value by dividing his estimate of net operating income by a capitalization rate. The capitalization rate is based upon the perceived risk of the investment in the market and the expected return on such an investment.

• For example, consider the value of a rental building that generates $10,000 per year in net operating income. If a buyer paid $100,000 for the building he would receive a 10% annual return on his investment, assuming that net operating income stream continued into the future. If the building was in poor condition, or in a poor neighborhood, or if the economy was depressed, an investor may want a higher return to assume the risk of ownership. In such a case a buyer may only be willing to pay $80,000 for the building, which, if accepted by the seller, would result in an annual 12.5% return on the buyer’s investment. Thus, the market value of the building depends not only on the income it generates, but the perceived risk that the income stream will continue into the future.

Appraisers may chose not to use one or more of the three approaches if they feel application of a given approach would be inappropriate given the particular characteristics of the property. For example, because the cost approach considers the cost of reconstructing the improvements on the property, the cost approach is not used to estimate the value of vacant property. Likewise, because the income approach is based upon the amount of rental income a property may generate, the income approach is seldom used to value properties that are not rented, such as a single-family residence. Of course, if a particular single-family residence has a history of being rented, the income approach may be used and compared with the estimate of value indicated by the sales of comparable non-rented homes in the neighborhood.

Boards of Property Review

When the SRC acquires property through quick-take and files a Land Acquisition Petition pursuant to Md. Trans. Code Ann. § 8-323 and Rule 12-213, the matter may proceed to a hearing before the Board of Property Review (“BPR”). Each county has a BPR, which consists of 3 members – a lawyer, a farmer and an engineer. Baltimore City does not have a BPR. The BPR will hear the condemning authority’s case and the owner’s case and render an award.

Rules of evidence do not apply at these hearings and they are typically casual affairs conducting in a conference room. After the hearing, the BPR may view the property in person. The BPR renders its award within 30 days of the hearing.

Either party may appeal to the circuit court for a de novo review if they are unsatisfied with the award. BPRs are a great way to see the other party’s position and, hopefully, resolve the matter without further litigation.

The SRC can also bypass a BPR hearing and file a formal condemnation complaint with the circuit court.

Witnesses

The only issue to be decided in most condemnation cases is the value of the property being taken and any damages to the remaining property. The condemning authority hires a real estate appraiser to value the property and give an opinion as to the just compensation amount the property owner should be paid. The owner should do this too. In complicated cases, additional experts, such as land planners, engineers, or even traffic experts are needed to provide the appraiser with information needed to accurately value the property and damages to the remaining property.

Discovery

The condemning authority and the owner each have the right to ask the other for information and documents relating to their case, including the names and contact information for witnesses, the documents supporting their claims, and also carry out depositions of witnesses to get more information.

Trial

Maryland provides a right to a jury trial on the issue of just compensation in State condemnation proceedings. The parties may waive a jury trial, in which case the judge will determine the appropriate amount of damages. In Maryland, the property owner also has the right to a jury view, where the jury is transported to the property so that it can view the property in person. The parties present evidence and testimony in support of their claim as to the correct amount of compensation. The owner is permitted to testify as to the value of the property even though the owner may not be an expert.

Award

In "quick-take" cases, if the award is higher than the initial amount deposited into court, the owner is entitled to be paid the difference, plus interest. If the award is less, the property owner will have to reimburse the over-payment.

Post-Trial & Appeals

After judgment is entered, either party has the right to appeal the judgment. If the judgment is not appealed, it is final.

Relocation Benefits

In some instances, the owner is entitled to additional compensation if they have to relocate. Relocation benefits may reimburse a portion of moving expenses, utility reconnection expenses, business advertising expenses, or a variety of other related expenses.

Consequential Damages

An owner is not entitled to any compensation unless at least some part of the owner’s property is taken. Loss of business is generally not compensable in a condemnation action, because the condemnor is only required to pay just compensation for the real property being taken and damages it causes to the remaining property. A business that relocates may be more or less valuable after being reestablished. But in neither event will the owner be entitled to compensation.

If the entire property is not taken and the business continues to operate from the original location after the condemnation, any loss in business resulting from the condemnation may be reflected in a lower value of the property and be compensable as severance damages. For example, a location that becomes less favorable due to a condemnation will attract lower rents. This lower rental value will be reflected in a lower market value for the property and the owner should be compensated for this loss.

Taxes

A condemnation is considered an involuntary conversion and is treated differently from other sales and income. Taxes on the award or proceeds of a sale in lieu of condemnation may be deferred. If a portion of the award is considered severance damages (compensation for damages to property still owned), the payment of taxes on that portion of the award may be deferred. Those portions of the award attributable to business damages or interest are generally taxed as ordinary income.

Useful Information

• Projects that require the condemnation of private property generally have a long life from conception to implementation. The amount of just compensation to be paid to any particular property owner will be determined based upon the value of the property as of the date the property is actually taken. Time may pass between the time an owner first hears about a proposed project and when the government takes the property. Actions taken by the owner during this period may significantly impact the property’s value.

• Understand the full impact that a project may have on the property, or any business being operated on the property, as well as the damages the project may cause to the remaining property, in order that the owner may take steps to minimize the damages and preserve the value of the property being taken.

• An owner should act to obtain and preserve evidence reflecting the property’s condition and value. This is especially critical in “quick-take” cases, where the condemnor will take possession of the property early in the process and the property may be very different by the time of trial.

• Issues to consider include: whether to sell the property before it is condemned; whether to incur substantial expense to maintain or improve the property; whether to seek a change in zoning, or a variance, or extend or terminate leases; whether to purchase adjacent property, enter into agreements with surrounding or adjacent owners, or expand a business; and how to respond to the government’s request for information about the property or the business being operated on it. An owner may also want to investigate whether the project may be modified to lesson or avoid detrimental impact to the property.

• Avoid taking positions which may be used against the owner in the condemnation proceeding. If the owner contests the tax assessment, for example, and argues that the property is worth less than the assessed value, that appeal may be used against him.

• Leases and mortgage agreements signed by the owner prior to a condemnation may affect the portion of the final award to which the owner will be entitled. The owner should review and consider the impact of condemnation clauses contained within these documents, or the consequence of the absence of such provisions.

• The owner should maintain the appearance and condition of the property. Visual impressions, even to sophisticated professionals, are important, and the condemning authority’s appraisers will be inspecting the property long before it is condemned. It is important that the owner keep the property looking as good as possible.

• Contamination on the property may reduce the condemnation award, delay the payment of funds to the owner or result in the owner incurring liability for environmental cleanup charges. Take those steps necessary to assure that the property remains free of contamination. If the property is already contaminated, the owner must consider the impact such contamination may have in the condemnation action and whether remedial efforts are economically justified.

• In no event will an owner be required to surrender possession of his property until either (a) he agrees to a certain date; or (b) the condemnor obtains possession through a formal court action.

• If the owner sells his property to the condemning authority, the owner and the condemning authority should agree through negotiations upon a mutually acceptable date for surrender of possession. The owner typically indicates the time he needs to conclude business at the condemned property and relocate to a new site. The condemning authority typically indicates the time it needs to take possession of the property and demolish the buildings so as to meet its construction timetable. The condemnor will usually negotiate a date to surrender possession that meets both parties’ objectives.

• If the owner does not sell the property and the condemnor acquires it through a formal condemnation action, the actual loss of possession will depend on whether the condemning authority obtains possession by “quick-take” or inquisition.

For your free consultation, call (410) 415-7071.