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Legal Research Digest 62 NATIONAL COOPERATIVE HIGHWAY RESEARCH PROGRAM October 2014 TRANSPORTATION RESEARCH BOARD OF THE NATIONAL ACADEMIES EMINENT DOMAIN AND FAIR MARKET VALUE IN A DEPRESSED REAL ESTATE MARKET This report was prepared under NCHRP Project 20-6, âLegal Problems Arising Out of Highway Programs,â for which the Transportation Research Board is the agency coordinating the research. The report was prepared by Larry W. Thomas, The Thomas Law Firm, Washington, DC. James B. McDaniel, TRB Counsel for Legal Research Projects, was the principal investigator and content editor. The Problem and Its Solution State highway departments and transportation agen- cies have a continuing need to keep abreast of operat- ing practices and legal elements of specific problems in highway law. This report continues NCHRPâs practice of keeping departments up-to-date on laws that will affect their operations. Applications Since 2005, a myriad of social and economic circum- stances, including, but not limited to, diminished property values, foreclosures, loan values exceeding actual fair market values, natural disasters, and other casualties have presented significant challenges in the acquisition of prop- erties for transportation projects. Outstanding liens encum- bering those properties often exceed the actual and current fair market values. Figures prepared by First American CoreLogic, a real estate information company in Califor- nia, showed that at the end of the third quarter of 2011, 10.7 million, or 22.1 percent of all residential properties with a mortgage, were in negative equity. The fair market value rule in these circumstances works an involuntary hardship on property owners and lienholders, leaving a forced loss on one or more parties (i.e., the property owner, condemnor, or lienholder). How do condemning agencies and the courts resolve the problem of just compensation in light of declining prop- erty values caused by financial calamities beyond the partiesâ control? Do statutory remedies exist or have courts created judicial exceptions to the fair market rule for just compensation? This digest considers whether other approaches to valuation, such as the income approach or the replace- ment or reproduction cost method, are alternatives to the comparable sales approach that may result in a high- er valuation for the purpose of deciding just compensa- tion. The digest discusses whether the concept of just compensation allows for any judicial flexibility in deter- mining the value of real property when valuations are generally depressed. This digest also discusses whether there are Depression-era and later precedents that are relevant to the determination of just compensation, such as during the recent financial crisis. The material discussed in this digest should be useful to attorneys, real estate officials, planners, financial officials, developers, engineers, property owners, and community leaders.
