March 3, 2014

Are governments circumventing the "just compensation" requirement?

By Jonathan Wood Attorney

Reason‘s A. Barton Hinkle has an article reporting on a clever — some would say cruel — scheme to abuse property owners that the Virginia Department of Transportation has developed. What’s the scheme? First, the agency announces that it is going to take your private property. Then it assesses the value of the taken property and puts that amount into an escrow account from which you can withdraw all or part of the funds. If you challenge this valuation, arguing that your constitutional right to “just compensation” requires that the agency pay more, the agency revises its assessment downwards.  If the agency successfully convinces the court that its later, smaller estimate is sufficient, it demands that you pay back any amount withdrawn in excess of the smaller estimate.

As the article explains, it is difficult to characterize this as simply the result of a property owners taking a risk by challenging the earlier assessment. For many property owners who sincerely believe that the compensation offered is inadequate, they have no choice but to withdraw some or all of the funds while challenging the award. Take an average homeowner whose property is taken, she would have no choice but to withdraw the funds because the state has kicked her out of her own home. The need to find alternative shelter requires that she withdraw some of the escrowed funds. The decreasing appraisal scheme creates a very strong disincentive for her to defend her rights to just compensation because, if she is unsuccessful, she will not only have lost her home but could very well be bankrupted by the agency’s demand that she pay back the difference. And this difference is no small matter, the article reports examples where the later assessments decreased substantially, e.g. from $214,000 to $14,000.

This is not the only example of government mischief to circumvent our rights to just compensation. Others make the bizarre claim that, if they announce their intention to take your property long enough before they actually do, they can avoid the obligation to pay just compensation entirely. They argue this on the grounds that, by allowing you to continue to use your property in the meantime, you have been compensated with whatever this time using the property was worth. They do so even though you already owned the right to use this property during the grace period, as well as the much longer time subsequent to this period.

Rather than a scheme to compensate property owners, this abuse is more akin to the unconstitutional conditions cases like Nollan. In essence, the government is “offering” to stay its hand in exercising its power of eminent domain for a short period in exchange for the property owner giving up her constitutional right to compensation. Only this scheme is worse because, unlike the permit context of Nollan, the property owner isn’t given any choice in the matter.

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