April 11th, 2014

Bailouts a Taking?

Another victim on the Boulevard of Broken Dreams
Photo by John Martinez Pavliga, Berkeley, USA

Here’s an unusual takings (maybe?) case making its way through the Federal Courts:

A&D Auto Sales v. U.S.

The issue goes something like this. As part of the bailouts of GM and Chrysler, the Feds mandated that these two automakers cancel franchise agreements with certain dealerships, including the Plaintiffs.

Plaintiffs brought suit alleging a taking of their franchise agreements. But are these franchise agreements ‘property’ as defined by the Constitution and case law protecting property? The government argued no, moving to dismiss the case and also argued that the terminations were not causally linked to the government demands.

The Court of Federal Claims refused to dismiss, and the Federal Circuit agreed, saying this unique case of first impression warranted a continued look, but sent the case back down for the Plaintiffs to amend their complaint to more clearly define and explain that the government action, not the financial situation for GM and Chrysler, caused the loss in value.

Stay tuned, this could get interesting as more facts are developed in the case.

Uncategorized

February 17th, 2014

Eminent Domain and Mortgage Foreclosure

 

Sign of the Times

We live in the age of foreclosures. The courthouses are filled with pro se litigants, trying to find the proper hearing room, or showing up 20 minutes late and missing the hearing entirely.

None of this has stopped Florida’s population growth and the deterioration of our roads. FDOT and other condemning authorities can’t wait around for the foreclosures to work their snail’s pace through the system. So the ‘condemnation in concert with foreclosure’ has become more of a rule than exception in residential eminent domain matters.

Several of our attorneys are currently on all sides of this issue. In one case, we represent a property owner who was already deep in a foreclosure case when he received notice of a taking, creating a tangled web of interacting and overlapping interests of the taking authority, bank, courts and property owner.

In other cases, we are working on behalf of a condemning authority which needs a portion of property for a public project. The problem is the property is deep in foreclosure and the owner is nowhere to be found.

Finally, the third side. In yet other cases, we work on behalf of banks which have been put on notice that they have an interest in, or a property they are in the process of foreclosing has been slated for partial acquisition.

The unique issues created when these two claims colide have yet to make it to the appelate courts, and questions still abound. For example, does the condemning authority take subject to the foreclosure? Could they end up paying the wrong party if the Court grants the foreclosure? What are an owner’s rights to the proceeds in an eminent domain action where they are already in foreclosure?

No matter whether you are an owner, bank or represent a condemning authority, the first step is to check your mortgage. Most, if not all, have a provision entitling the bank to some or all of the proceeds of any condemnation, provided they are applied to the outstanding balance. Moreover, many contain provisions allowing the bank, either always or in situations where the owner is not appropriately defending their title, to hire attorneys to stand in the owner’s shoes and contest the taking or argue for appropriate compensation.

Foreclosure Notices make for a nice wallpaper at the Courthouse

The real Gordian Knot comes where a condemning authority needs only a portion of property already in a mortgage foreclosure. There, a lis pendens has been filed on behalf of the bank seeking the foreclosure judgment. A lis pendens is a document filed in the public records putting the world on notice that there is a lawsuit out there, or a claim, where someone other than the title holder is asserting a right to title to a piece of property. Anyone who acquires title to the property while a lis pendens is in place may be doing so subject to the outcome of the litigation.

This means the condemning authority may or may not (depending on who you ask) be willing to go forward and secure title to the property. The competing theories are as follows: (1) with a lis pendens in place, any title transferred is subject to the decision of the foreclosure court where the case is pending. In this scenario, if a condemning authority obtains title from the fee owner, ignoring the mortgage holder’s lis pendens, the condemning authority could be taking the property subject to the outcome of the foreclosure case. In this scenario, the condemning authority may end up taking the property twice. Because of this, many condemning authorities want clarity in the title and concert between the eminent domain case and the foreclosure matter.

Alternatively, the power of condemnation may not subject to a lis pendens, as all property is held subject to the sovereign’s ultimate right to retake it. While this is probably the legally correct view, the practical application of this in system with title insurers who want title as clear as possible remains murky.

If you or your clients are experiencing both foreclosure and an eminent domain suit and would like more information on this topic or to discuss it further, feel free to contact us.

Constitutional Law,Florida Eminent Domain

August 1st, 2013

FPL Moves Forward with Two Natural Gas Pipelines

Florida property owners will face eminent domain battles over two natural gas pipelines set to be built in the state, totaling approximately 340 miles.

Florida Power & Light Company has awarded the bids for the construction of two new natural gas pipelines in the state of Florida.  Sabal Trail Transmission, LLC will construct a new 214-mile pipeline running from the Florida-Georgia border to FPL’s Central Florida Hub in Osceola County.  From the Central Florida Hub, Florida Southeast Connection, LLC will build a new 126-mile pipeline to transport natural gas to FPL’s Martin County Clean Energy Center.

**Click here for a map of the proposed Sabal Trail Transmission route, and click here for a map of the proposed Florida Southeast Connection route, both of which are still subject to change.

Both of these projects will require FPL to use the power of eminent domain to acquire private property for the pipeline construction.

In Florida, property owners who are faced with eminent domain takings are not without protection.  The Florida Constitution and Florida Statutes require a condemning authority to pay “full compensation”  for an eminent domain taking.  This includes both the full value of the property taken, as well as any damages to the remaining property.  In addition, in Florida, the condemning authority is required to pay the owner’s attorneys’ fees and reasonable costs, including costs associated with hiring a team of experts to evaluate the taking and its effects.   Often this will include a real estate appraiser and an engineer, and many times a land planner.

Property owners in Florida have no obligation to take the first offer made by the condemning authority.   For more information about these projects or if you have questions about the potential impacts to your property, please contact us.

Florida Eminent Domain

July 9th, 2013

Condemnation as a Cure for the Foreclosure Crisis: Why it doesn’t work in Florida.

As we enter yet another year of the foreclosure crisis, more and more people are turning to creative approaches to a global cure for the breakdown in the system. Most recently, a group of investors have suggested that eminent domain be used in the states hardest hit by the mortgage foreclosure crisis (read as Florida, California and Nevada) to help alleviate the foreclosure crisis. Here’s a good overview from Felix Salmon at Reuters and another from NBC News.

Like many cure-all ideas, the concept has some initial appeal: government takes over distressed properties while letting the banks holding the mortgages off of the hook for potential losses and at the same time allowing families to remain in their homes under leases to the government.

Unfortunately, the devil is in the details. First, the states-rights arguments would all but preclude the federal government from being able to administer such a program. Imagine the court cases which would arise from the Federal Department of Housing and Urban Development condemning lands piecemeal within various counties, cities and towns.  Even with some sort of specific program created by the Congress, the impacts and issues would be significant. Would the federal government be paying the property taxes on these properties? Could the cities and counties file liens for unmowed lawns and green swimming pools?

This leaves state and local governments as the only viable alternative. In Florida, in order to use condemnation, a government must be able to show a valid public purpose and a relationship between that purpose and the proposed action. Here in Florida, the legislature passed Florida Statutes 73.014 (“Taking property to eliminate nuisance, slum, or blight conditions prohibited”) in 2006 in the wake of the Kelo v. New London fallout (see our article below for a quick recap of  this now infamous court case). That statute mandates:

(1) Notwithstanding any other provision of law . . . any [ ] entity to which the power of eminent domain is delegated may not exercise the power of eminent domain to take private property for the purpose of abating or eliminating a public nuisance . . . eliminating a public nuisance is not a valid public purpose or use for which private property may be taken by eminent domain and does not satisfy the public purpose requirement of s. 6(a), Art. X of the State Constitution. . . .

 (2) Notwithstanding any other provision of law,  . . . any [ ] entity to which the power of eminent domain is delegated may not exercise the power of eminent domain to take private property for the purpose of preventing or eliminating slum or blight conditions . . . taking private property for the purpose of preventing or eliminating slum or blight conditions is not a valid public purpose or use for which private property may be taken by eminent domain and does not satisfy the public purpose requirement of s. 6(a), Art. X of the State Constitution

So what public purpose would be put forth other than elimination of blight? There may be arguments related to the stabilization of real estate markets or helping homeowners stay in their houses, but that all rings of euphemisms for blight prevention.

Second, what would such a program look like? From the proposals put forward so far, it would entail a condemning authority (some have proposed either a governmental entity or a privately capitalized pseudo-governmental entity) condemning the properties from the owners and paying the banks the ‘fair market value’ of the property is while allowing the owners to remain in the homes.

The Florida Constitution entitles a property owner to have his or her attorneys’ fees, expert fees and costs paid by the condemning authority as part of the full compensation to which they are entitled.  Beyond that, the owner is entitled to full compensation, which sometimes means fair market value, but can (and often does) include additional amounts appropriate “to make the owner whole.”

What this means is that a program such as the one proposed would cost multiples of what these investors or the local governments envision – and appropriately so. If the government is involuntarily seizing citizens homes and assets, isn’t it appropriate that it be done in a careful manner with multiple checks to ensure everyone is treated fairly?

The second proposed option which is being discussed is condemnation of the mortgages themselves.  This would be unprecedented in Florida, and posibly the country.  Florida Courts have held that mortgage holders do not have property rights in the property they encumber (unlike easement holders) and are therefore not entitled to any eminent domain proceeds during a condemnation, absent provisions in the mortgage. Where there are provisions in a mortgage, the mortgage holder may be entitled to receive the property owners’ just compensation to be applied against the outstanding balance of the loan. However, these are contractual rights, not property rights.  Can they be condemned? Who knows. And how does one go about finding the fair market value of a mortgage on a given date?

Here’s a quick example of the problem. A property owner has a piece of property worth $250,000 with a $400,000 mortgage on it. What is the value of the mortgage? The condemning authority’s position would likely be that the mortgage value is capped at $250,000. The mortgage holder would say no less than $400,000.

This would be confiscatory in some, if not all cases. Mortgage holders have a right to seek and obtain a deficiency judgment against a borrower.  This means that on top of the value of the mortgage, the courts would have to conduct evidentiary trials (in front of 12 jurors as mandated by the Florida Constitution) in which evidence of the probability of payment, the assets of the debtor and the collectability of a deficiency judgment would be necessary to show the value of the mortgage.  This would make each of these trials into a soap opera of what other assets the debtor has and what is or is not collectible.

While the discourse is very healthy in light of the ongoing foreclosure issues nationwide, eminent domain is not the silver bullet.  By its nature, Eminent Domain is a non-voluntary process, and therefore requires extensive judicial checks to make sure the power is not abused.

Feel free to contact us at the email address below to discuss your eminent domain concerns.

May 31st, 2012

Final State Approval for Wekiva Parkway

On Tuesday, the Florida Department of Transportation gave final approval to the $1.66 billion Wekiva Parkway project. The Orlando-Orange County Expressway Authority had approved it back in February, and the FDOT had agreed in principle to assist with the funding and construction, but it was not until Secretary Anath Prasad signed his name on Tuesday that it became final. Construction will likely begin in the last quarter of this year, on portions of the project where the land is already owned by the State.

If you own property that may be impacted by the new Wekiva Parkway, or have questions about eminent domain generally, please contact GrayRobinson, P.A.’s eminent domain attorneys at (407) 843-8880 or by email, bsmith [at] gray-robinson.com.

Florida Eminent Domain