Caltrans Must Sell Back Condemned Homes at Original Purchase Price

More than 50 years ago, Caltrans purchased roughly 500 homes under threat of eminent domain within the planned right-of-way for the anticipated construction of the I-710 freeway (linking Monterey Park to Pasadena).  As we reported a number of years ago, Caltrans finally decided to sell those homes once it became clear the alignment would not be utilized.  We haven’t heard much on how that sales process was going, but the Pasadena Star reported recently that it has been the subject of litigation, which has now reached an outcome.

In Steve Scauzillo’s April San Gabriel Valley Tribune article, Renters of Caltrans-owned homes in South Pasadena get to buy them $970,000 below market, several current tenants will be able to purchase their properties back from Caltrans for the same price Caltrans paid in 1963 — which range from the mid-$20,000’s to mid-$30,000’s.  Caltrans had attempted to sell the homes back at the same price, but adjusted for inflation, which brought the prices up to several hundred thousand dollars (which was still dramatically below their fair market value of over $1 million).  The court disagreed with Caltrans’ inflation adjustment, concluding that the homes should be offered back at the original acquisition price – no more, no less:

The Caltrans policy of adjusting the original acquisition price adjusted for inflation to determine the affordable sales price for the petitioners’ homes is an underground regulation and is therefore nullified.

Beckloff ruled that Caltrans came up with the idea of upping the sales price — sometimes six or seven times the acquisition price — on its own. In other words, officials made it up. “Caltrans cannot use its pricing methodology,” Beckloff wrote, saying the bureaucracy was acting in a “type of ‘quasi-legislating’ power …”

Caltrans tried to argue that selling any state-owned properties for less than fair market value would be cheating the taxpayers.  In its court briefs, Caltrans said it was “obligated and authorized,” and in fact “mandated by law” to “adjust the original acquisition prices for inflation.”  The court explained that Caltrans has no authority to vary from what is known as the “Roberti Law,” a complex set of regulations that requires Caltrans to offer the homes to tenants living there for a certain period of time and at an affordable price who are low- and moderate-income. Of the 460 surplus properties, about tenants at 120 of them qualified for the affordable price program.

Caltrans didn’t walk away empty-handed.  The court kept in tact covenants that will remain as liens on the property during a transfer of ownership.  The tenant does not realize the full equity, only the appreciation from the sales price from the purchase to the next sale. In other words, upon a later sale, about $900,000 in equity would go to a state agency charged with building affordable housing, called the California Housing Finance Agency.

The 710 freeway example — with Caltrans’ ownership dating now over 50 years — is quite the story.  After the backlash from the famous eminent domain Kelo decision and the enactment of Proposition 90 in California, the results today would likely have played out differently.  Under California Code of Civil Procedure section 1245.245, if a public entity does not put condemned property to public use within 10 years of the adoption of the resolution of necessity (and does not adopt a new resolution), the public entity is required to offer the property back to the original owner at the present market value, unless it is a single family residence, in which case it is to be offered back at the price paid by the agency, adjusted for inflation, if the original owner meets low or moderate income requirements.  If the original owner cannot be found, the agency is required to sell the property as surplus.

Batter Up for Spring Training with Nossaman & IRWA!

Jump start your Spring learning goals with the International Right of Way Association’s upcoming events throughout California.  Join Nossaman’s Eminent Domain & Valuation Chair, Brad Kuhn, for a presentation entitled “Managing Publicly Owned Property: Best Practices for Leases, Licenses, and Encroachments.”

On Friday, April 5th, Brad will be presenting at the IRWA Chapter 42 Spring Training Conference at the Valley Transportation Authority Auditorium in San Jose, CA.  For more information on the Spring Training Conference, please visit Chapter 42’s website here.

For those of you in SoCal, you can also catch Brad’s informative session on this same topic at the IRWA Chapter 11 April Luncheon on Wednesday, April 17th, at the Handlery Hotel in San Diego, CA.  Further information on the Chapter 11 event can be found here.  We hope to see you out in the field at one of these great events!

Eminent Domain From Start to Finish: Streamlining the Basics & Navigating the Complexities from Precondemnation to Litigation

Nossaman LLP invites you to join us for our 2019 seminar “Eminent Domain From Start to Finish:  Streamlining the Basics & Navigating the Complexities from Precondemnation to Litigation.”  Whether you are new to the Eminent Domain arena or a seasoned pro, this complimentary afternoon seminar with panels of Nossaman attorneys and leading industry professionals will provide extensive insight and guidance into the process of eminent domain.  We will be presenting the seminar at both the Luxe City Center Hotel in Los Angeles, on Tuesday, March 19th, and the City Club of San Francisco, on Tuesday March 26th.  Additionally, our San Francisco seminar will be co-hosted by Associated Right of Way Services, Inc. (AR/WS).

At both events, attendees will have the chance to participate in Q&A sessions with each panel, as well as network with colleagues during an evening cocktail reception.  An application for California MCLE accreditation of this program is pending. This program has been approved for 4 continuing education hours by the Bureau of Real Estate Appraisers and may also qualify for recertification credits with the International Right of Way Association.

For additional details and to register for the Los Angeles seminar, please click here.

For additional details and to register for the San Francisco seminar, please click here.   

We hope to see you at our 2019 Eminent Domain seminar!


Property Owner’s Spot Zoning Challenge Unsuccessful, But Regulatory Taking Still Possible

When a local government agency impermissibly “spot zones” a property, thereby depriving it of all economically beneficial uses, can the property owner seek to invalidate that zoning decision, or is the owner left with a claim for damages under the theory of a regulatory taking? In a recent published California district court decision, Continue Reading

Regulatory Taking May Result From Improper CEQA Determination? Stay Tuned

A few months ago, we reported on a Court of Appeal decision, Bottini v. City of San Diego, where the Court held that delays resulting from a governmental agency’s improper denial of a permit application for a new development did not result in a regulatory taking.  The case involved a local agency’s improper application of CEQA to a proposed residential development, and the property owner successfully securing a decision by the court to overturn the City’s requirement to comply with CEQA where there was a clear exemption.  The owner also sought damages due to a lengthy delay in development, but the Court held there had been no regulatory taking.  The owner petitioned for review by the California Supreme Court, which is rarely successful.  However, interestingly, the Court decided to take up the case, so we will now await a decision on the issue.

The Court will be faced with determining whether a developer who succeeds in overturning a city’s improper application of CEQA (or development regulations generally) is entitled to secure just compensation from the public agency resulting from the development delay — i.e., a temporary “taking” of the property.  (For us regulatory takings geeks, the Court will likely focus on whether to apply the Penn Central “investment-backed expectations” test or the Landgate “substantially advances” test.)  Usually these decisions revolve around whether (i) the government’s improper action can be categorized as “normal delay” during the permit approval process, and (ii) the government’s actions were completely out of the realm of reasonableness.  Rarely is there a bright-line that can be drawn in these types of cases, so it will be interesting to see how the Supreme Court renders a decision.  We’ll continue to follow the case as it unfolds.

IRWA Chapter One 27th Annual Valuation Seminar

Join Brad Kuhn, Chair of Nossaman’s Eminent Domain & Valuation Practice Group, at the International Right of Way Association’s Chapter One Annual Valuation Seminar.  The event will be held on Tuesday, February 12, 2019, at the Quiet Cannon Conference Center in Monterey Park, CA.  Brad will be addressing “What To Do When the Cookie Isn’t From A Cutter:  Unusual Valuation Scenarios From Eminent Domain.”  For current information on the seminar, please consult the IRWA Chapter One website.

Covering Los Angeles, Chapter One is the founding Chapter of the International Right of Way Association.  The members of Chapter One come from all walks of life such as transportation authorities and departments, water and school districts, public works and redevelopment agencies, utilities companies, railroads, and private consultants such as appraisers, title specialists, acquisition agents, attorneys, relocation assistance agents, and right-of-way and civil engineers.  The Chapter regularly offers a wide range of education and professional development opportunities reflecting the diverse needs of stakeholders in the right of way profession.

We hope to see you there!

Resolve to Learn More About Eminent Domain in 2019!

Please join Nossaman Eminent Domain & Valuation Partner Rick Rayl at CLE International’s 21st Anniversary Southern California Eminent Domain Conference.  The event will be held from Thursday, January 31st through Friday, February 1st at the DoubleTree Downtown in Los Angeles.  Rick will participate in the presentation, “Case Law Update:  The Latest Developments,” on January 31st at 10:45 a.m.  Additional topics covered during the conference will include: Government Regulation of Short-Term Vacation Rentals, Insights into Severance Damages, and California’s Wildfires and Potential Inverse Condemnation Liability. Continue Reading

California Coastal Commission to Recommend Eminent Domain to Combat Sea-Level Rise?

With the recent widespread reports of sea-level rise triggered by global warming, the California Coastal Commission — a state agency which regulates coastal development — plans to release a proposal in early-2019 which provides guidelines to local jurisdictions on how to combat the potential impacts.  The stakes are enormous, as the Commission believes many homes along California’s 1,100 miles of coastline will inevitably be wiped out by a rising ocean.  According to an article by Anne Mulkern in E&E News, Calif. prepares policy for coastal ‘retreat’, the suggested approach in a draft version of the Coastal Commission’s proposal involves “managed retreat” — i.e., buying or condemning threatened homes and relocating them or tearing them down, which would thereafter free the coastline and preserve the beaches.  The Commission argues against relying on sea walls for fear that they would make sandy beaches disappear under rising ocean water.  Needless to say, the proposal is extremely controversial.

What are the Potential Impacts of Sea-Level Rise?

According to various studies prepared, sea-level rise impacts will be astronomical over the next 80 years.  While a rise in sea-level of 2.5-6.5 feet may not seem dramatic, in addition to impacts to many residences and businesses, dozens of wastewater treatment plants and power plants, 250 miles of highway, 1,500 miles of roads, and 110 miles of railways could be at risk.  A recent article by my colleague, John Erskine, appears in the latest issue of California Special Districts magazine, and addresses the potential widespread impacts to California’s coastline.

How Would “Retreat” Be Accomplished, and What are the Alternatives?

While the Coastal Commission itself would not be buying or condemning the homes (it tasks the local cities and counties with that directive), the proposal itself is hugely detrimental, as the Commission has oversight over municipalities as they write land-use rules and can in many cases control permitting related to construction or development in coastal zones.   The Commission is proposing to condition development permits in the coastal zone on ensuring modification or removal of structures where necessary to maintain minimum beach width, and including such language in recorded deeds so all future purchasers are on notice.   It is further suggesting that jurisdictions fund “retreat” by buying the homes and then renting them out until they’re damaged.  Nossaman has assisted many property owners and local agencies recently with Coastal Commission approvals of new developments or modifications, and based on that experience, it is clear that the Commission is attempting to condition coastal development permits on waiving shoreline protection devices (such as seawalls), and is otherwise attempting to require setback conditions that reduce the size of development.

Some cities have opposed the “retreat” approach, and have instead pursued a sea-wall approach or beach replenishment programs.  For now, push-back by beach homeowners has at least delayed hearings on the Commission’s proposal, but many complex questions remain, including impacts to property values, how to manage and fund “retreat”, the loss of substantial property taxes, and the use of eminent domain for such a controversial issue.

Other states have addressed somewhat similar problems, including the acquisition of flood-prone homes in New Jersey and Houston, but California appears to be the first state in the country to be considering retreat so broadly.  And while it may seem like sea-level rise impacts are many years away, we are already seeing the ramifications.  In Sonoma, 11 homes have been torn down or collapsed into the sea as oceanfront cliffs have fallen away, and similar erosion conditions in Pacifica have resulted in multiple homes or apartments being acquired by eminent domain and then demolished.  Even Caltrans is shifting Pacific Coast Highway in certain locations.

Is “Retreat” Legal, and What are the Potential Takings and Valuation Issues?

Property rights advocates argue the Coastal Commission does not have authority to condition development permits on retreat management, while the Commission contends it does under the Coastal Act, which mandates preservation of beach access.   The Commission further purports that its proposal is simply “guidance.”  But its real-world effect is much more significant, particularly as we have recently seen the Commission place significant restrictions on development involving the waiver of shoreline protection.  Impacted property owners are encouraged to consult with coastal law experts before agreeing to any special permit condition approvals.

Moreover, the guidance itself will potentially massively impact property values and could potentially effect a regulatory taking of various properties.  Traditionally, a regulatory taking involves the examination of three factors:  (1) the economic impact of the regulation on the claimant; (2) the extent to which the regulation has interfered with the claimant’s reasonable, distinct investment-backed expectations; and (3) the character of the government action.  If the Commission’s proposal moves forward, it is likely beachfront owners will at least attempt to challenge the proposal under this regulatory takings framework (i.e., a “facial challenge”), and we are certainly likely to see owners challenge strict standards or permit conditions placed on new development applications as unconstitutional (i.e., an “as-applied challenge”).

If local jurisdictions ultimately move forward with acquiring beachfront properties, either voluntarily or under threat of eminent domain, there will surely be large valuation disputes and legal issues on how, if at all, the Commission’s guidance and its impact on property values should be considered in determining just compensation.  Impacted owners may seek to recover precondemnation damages (i.e., diminution in value due to the unreasonable actions or delays of the government), and will claim that any decrease in value due to the Commission’s guidance or the jurisdiction’s proposed acquisition or retreat program must be ignored.  (See Code Civ. Proc., sec. 1263.330.)

We will continue to track the Coastal Commission’s proposal and report on any updates.

When Can the Government Physically Occupy Property Without Facing Inverse Condemnation Liability?

When the government physically takes or occupies property without first going through the rigorous procedural requirements under California eminent domain law, usually it’s a clear-cut case of inverse condemnation liability.  But a recent California Court of Appeal case provides a unique exception involving property subject to dedication.

In Prout v. California Department of Transportation (Dec. 18, 2018, 2018 Cal. App. Unpub. LEXIS 8523),  Caltrans sought to use a 1.3-acre strip of land to make improvements to Highway 12 in Calveras County.  Caltrans started with the traditional eminent domain process by sending the impacted property owner a letter indicating that an appraisal would be prepared to determine compensation.  However, Caltrans later discovered that the strip of land was supposed to have been dedicated 20 years earlier as part of the property owner’s subdivision; Caltrans therefore asked the owner to sign a grant deed for the property.  The owner refused.

Despite the owner’s refusal to sign the grant deed and complete the dedication process, Caltrans began physically occupying and using the property for the highway improvement project.  The property owner filed an inverse condemnation action claiming Caltrans had taken the property without the payment of just compensation.  Caltrans defended its actions, claiming that the owner dedicated the property 20 years earlier, and that while Caltrans had not formally accepted the dedication, its physical occupation of the property amounted to acceptance.  The owner also claimed that the dedication was for a small access road, not the entire 1.3-acre strip, as such a large dedication would be unconstitutional.

At trial, the court sided with Caltrans, concluding that its physical occupation amounted to acceptance of the dedication, and upon Caltrans’ “acceptance,” the property owner no longer owned the strip and there was no taking of private property.  The court likewise ruled that the owner’s challenge to the illegal dedication was untimely.

On appeal, the Court confirmed the trial court’s rulings.

  • The Dedication was “Accepted” by Implication:  The Court explained that a dedication requires both an offer of dedication and acceptance of that offer by the public.  Both the offer and the acceptance may be made either expressly or by implication, and acceptance is implied where the public has made use of the property for a period of time demonstrating intent to accept dedication without any formal action by the governmental agency.  Here, the owner’s offer of dedication appeared in a subdivision map, and 20 years later, Caltrans validly accepted the dedication by implication by physically occupying the property for highway improvements.  Because the property was dedicated, there was no taking of private property.
  • The Challenge to the Dedication Requirement was Untimely:  With respect to the owner’s challenge to the dedication requirement, the Court explained that the “government cannot, as a condition for issuance of a development permit, impose a requirement that the landowner dedicate land for public use, unless there is an “essential nexus” between the condition and the projected impact of the proposed development.”  Here, the highway did not need to be widened because of the subdivision, thereby failing the nexus requirement (i.e., it was likely unconstitutional).  However, the Court explained that a property owner cannot accept the benefits of a permit (here, the subdivision of the property), and then later challenge the constitutionality of the permit conditions (here, the dedication).  As a result, despite the dedication likely being improper, the owner’s challenge to the dedication requirement was untimely.

The case serves as a lesson to public agencies and property owners.  For public agencies, it serves as a reminder to formally accept dedications before the property is utilized to avoid this type of fight.  For property owners, it serves as a reminder that if you believe a permit condition requiring a dedication or exaction is improper, you must timely challenge that condition — you cannot accept the benefits of a permit, such as approval of a subdivision map, and preserve the right to challenge the dedication down the road.

Redevelopment 2.0 on the Books for 2019?

Ever since the demise of redevelopment agencies in 2012, there have been a variety of legislative efforts to revive, incrementally or in whole, some form of redevelopment in California.  We have seen enhanced infrastructure financing districts, community revitalization and investment authorities, and more traditional affordable housing authorities and joint powers authorities.  But we have yet to truly see a funding source that would revive the use of redevelopment tools.  The political climate is much different now than in was in 2012:  California has a surplus budget, there is an affordable housing crisis, and thousands of homes have been lost over the last several years due to wildfires and other natural disasters.  Piggy-backing on overwhelming support of an affordable housing measure in 2018, Senators Beall and McGuire are now proposing SB 5, the “Local-State Sustainable Investment Incentive Program.”

An article by Tom Gogola in the Pacific Sun has deemed the bill “Redevelopment 2.0,” and according to the article, Beall’s office believes the bill aligns with Governor-elect Gavin Newsom’s campaign priorities given that he signaled support for re-upping RDAs in his campaign.  The bill would provide funding of up to $2 billion over the next ten years.  So what makes this different from traditional redevelopment in California?  Gogola reports:

Redevelopment 2.0 emphasizes the affordable-housing component over economic development, which lawmakers say will be a hedge against the sorts of corruptions of the RDA model that led to big-box build-outs under the old redevelopment regime. And the bill includes a threshold requirement that at least 50 percent of funds sent to localities are used for the development of affordable housing.

In addition to the shift away from economic development, the bill also supports transit-oriented development and builds resilience from sea-level rise, along with providing rigorous state oversight and, according to the release, “taxpayer protections to ensure that affordable housing construction occurs quickly and local governments are accountable for the expenditure of funds.”

The bill seems to be hitting on the hot-button topics (affordable housing, transit-oriented development, and sea-level rise), while hedging against some of the issues that doomed redevelopment in the past (dodging financing for big-box stores and stronger oversight to prevent running up debt and handing out massive subsidies).  We’ll continue to track the bill into the new year.