August 10, 2005

What’s Happening to the Real People Involved in the Kelo Eminent Domain Case

Filed under: Taxes & Government — Tom @ 9:19 pm

Welcome Volokh Conspirators!
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A blogswarm of energy and some instances of state legislative response have taken place in the wake of The Supreme Court’s ruling in the Kelo v. New London, Connecticut case, which in essence ruled that the government can take your property if some other person or entity convinces them that they can put your land to “better” (purposefully vague) use. In other words, the government’s power of eminent domain, which used to be limited to public purposes, such as building roads, bridges, etc., has now been broadened to the point of there being no meaningful limit.

Jeff Michael, whose blog’s normal focus is on consumer debt, credit, and personal finance, notes that what has been lost in all of the uproar are the horrors being visited on the losers.

I agree. I haven’t seen this covered anywhere else except the weekly community paper I’ve linked to, though that article goes back almost a month, and am shocked both at what is happening and at the lack of attention (and note, the whole contentious case isn’t necessarily over):

The U.S. Supreme Court recently found that the city’s original seizure of private property was constitutional under the principal of eminent domain, and now New London is claiming that the affected homeowners were living on city land for the duration of the lawsuit and owe back rent. It’s a new definition of chutzpah: Confiscate land and charge back rent for the years the owners fought confiscation.

In some cases, their debt could amount to hundreds of thousands of dollars. Moreover, the homeowners are being offered buyouts based on the market rate as it was in 2000.

….. (Matt) Dery owns four buildings on the project site, including his home and the birthplace and lifelong home of his 87-year-old mother, Wilhelmina. Dery plans to make every remaining effort to keep his land, but with few legal options remaining, he’s planning for the worst.

And for good reason. It’s reasonable to think that people who purchased property years ago (in some cases, decades ago) would be in a position to cash in, especially since they’re being forced from their homes. But that’s not the case.

The New London Development Corp., the semi-public organization hired by the city to facilitate the deal, is offering residents the market rate as it was in 2000, as state law requires. That rate pales in comparison to what the units are now worth, owing largely to the relentless housing bubble that has yet to burst.

“I can’t replace what I have in this market for three times [the 2000 assessment],” says Dery, 48, who works as a home delivery sales manager for the New London Day .

…. And there are more storms on the horizon. In June 2004, NLDC (New London Development Corporation) sent the seven affected residents a letter indicating that after the completion of the case, the city would expect to receive retroactive “use and occupancy” payments (also known as “rent”) from the residents.

In the letter, lawyers argued that because the takeover took place in 2000, the residents had been living on city property for nearly five years, and would therefore owe rent for the duration of their stay at the close of the trial. Any money made from tenants — some residents’ only form of income — would also have to be paid to the city.

With language seemingly lifted straight from The Goonies , NLDC’s lawyers wrote, “We know your clients did not expect to live in city-owned property for free, or rent out that property and pocket the profits, if they ultimately lost the case.” They warned that “this problem will only get worse with the passage of time,” and that the city was prepared to sue for the money if need be.

“It seems like it is simply a desperate attempt by a nearly broke organization to try to come up with more funds to perpetuate its own existence,” Bullock wrote. He vowed to respond to any lawsuit with another.

…. An NLDC estimate assessed Dery for $6,100 per month since the takeover, a debt of more than $300K. One of his neighbors, case namesake Susette Kelo, who owns a single-family house with her husband, learned she would owe in the ballpark of 57 grand. “I’d leave here broke,” says Kelo. “I wouldn’t have a home or any money to get one. I could probably get a large-size refrigerator box and live under the bridge.”

Tyranny, thy name is Kelo.

Alabama has done the right thing (SEE UPDATE 4–maybe not), as it “became the first state to enact new protections against local-government seizure of property allowed under a Supreme Court ruling…”

The other forty-nine states need to follow Alabama’s lead, and quickly.
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UPDATE: I’ve been attempting to find any new information on what is actually happening to the Kelo Seven victims, and haven’t found anything, even at the web site of the Institute for Justice, which represented the property owners. If anyone has news (hopefully with links), E-mail me.

UPDATE 2: August 12 Outside the Beltway Jammer.

UPDATE 3, August 14: This Von Mises Blog post says in the second paragraph that “The IFJ (Institute for Justice) also points out that Connecticut legislators have called for a moratorium on the use of eminent domain until their legislatures can revise property laws. Even the City of New London has agreed to allow Susette Kelo to stay in her property for now.” But there is no indication as to whether the meter is still running on the back rent.

UPDATE 4, August 15: A commenter at Volokh suggests that there’s less to Alabama’s law than meets the eye since eminent domain on “blighted neighborhoods” is still allowed. If so, I would agree with the commenter that this is a major disappointment.

UPDATE 5: Reason’s Hit and Run Blog picks up the story (warning: author throws an F-bomb in the first sentence).

UPDATE 6: Junkyard Blog says “You’ve got to be kidding me.”

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13 Comments

  1. If this is true, this case is headed back to the Supreme Court. The people have not accepted any payment, so that is not yet city property.

    Comment by MAK — August 11, 2005 @ 12:04 pm

  2. MAK, I supposed you’re correct, unless NLDC just comes in and bulldozes anyway with a “valid” court order. That might end it either, but it would certainly alter the playing field.

    This could get ugly. I only hope it’s not ignored. In light of how many other up close and personal stories of bogus “victims” we have to endure, it would be nice to see stories of these real victims of government tyranny get the notice they deserve, if for no other reason than to motivate legislation in the states.

    Comment by TBlumer — August 11, 2005 @ 2:11 pm

  3. Out of curiousity, would New London also have been charging them property taxes over the last five years? I’d be suprised if they haven’t…

    Comment by Brett Bellmore — August 15, 2005 @ 11:10 am

  4. #3-Don’t know for sure on property taxes, but there’s no reason to think they haven’t been charged property taxes.

    A follow-up point would seem to be that if they want back rent they need to give back the property taxes, which I think might have been where you were heading.

    Comment by TBlumer — August 15, 2005 @ 11:15 am

  5. Goes beyond that; I think the rationale is that if New London has been charging them property taxes, that constitutes an implicit acknowledgement on New London’s part that the property was not New London’s.

    Comment by James — August 15, 2005 @ 11:34 am

  6. I think there may be several overlooked points in this discussion.

    The [former] property owners are entitled to fair market value for the property. I don’t know the mechanism for determing that amount in Connecticut, but, I expect it’s similar to the process here in Massachusetts.

    When a municipality takes property by eminent domain, it pays the property owner what the municipality considers the fair market value. If the owner disagrees with the amount, the owner files suit and eventualy the amount is determined by a jury. Evidence would typically include the sales price of similar properties, the income-generating history and potential of the property, etc.
    The FMV is determined as of the effective date of the “taking” and the former owner receives interest on that amount [less the amount originally paid by the municipality] from the taking date.

    So presumably, the Kelo property owners received some payment in 2000; they have a claim that their property is worth a greater amount; and they have a claim for interest on that greater amount [or the full FMV of the property if nothing was paid in 2000].

    If the municipality is claiming a high rental value for the property, then that should only help the former owners prove the great value of the property itself.

    The change in the real estate market may make it difficult to purchase similar property for the 2000 FMV of the taken property plus interest. That’s unfortunate but not unjust. The value of real estate might just as well have fallen since 2000. Would the owners be looking to give back their “windfall.” If the municipality took the property then, the owners hsould not have been charged real estate tax, but, they should be charged “rent.” Clearly, they would have had to pay “rent” to live somewhere since 2000.

    I agree that the former owners should not be charged both real estate taxes and rent, but, I think the claim that the former owners are going to suffer an unjust financial loss may be overblown.

    Comment by KWithers — August 15, 2005 @ 12:09 pm

  7. What about interest on the 2000 assessment and property taxes?

    Comment by Marc W — August 15, 2005 @ 1:36 pm

  8. Sorry about #7 (answered in #6. My browser was not displayintg #6 when I asked #7, which was in response to #4.

    Follow that?

    Comment by Marc W — August 15, 2005 @ 1:38 pm

  9. According to New London area real estate agent Linda C. Davis:

    “To answer your main question – Did anyone get screwed? The answer is no, not financially. Susette Kelo bought her house in 1997 for $56,000. She was offered $123,000 in late 2000. This was an extremely fair offer – a very very generous offer. She would never have received that price if the house was listed. This is pretty typical of the houses that were purchased.

    “The market in New London since that time has continued to appreciate but it is difficult to assess whether the increase is primarily due to low interest rates and a good local economy or the arrival of Pfizer’s World Headquarters to New London.”

    In any case, if the city exercized its power of eminent domain in 2000, it’s hard to fault their failure to assess the properties at their 2005 FMV, pay damages after winning the case, reward petitioners for holding out, or give petitioners the pot after they lost their gamble. Kelo tried to game the system for a windfall. She’s lucky to leave the table with her stake. What would have been fun is if the city called her bluff — after buying out all her neighgors with “very very generous” offers, the city might have decided not to exercise its power of eminent domain over Ms. Kelo’s property; instead leaving her and her plot alone, zoned for single-family residential use — in the middle of a 10 acre parking lot.

    Comment by John Noble — August 16, 2005 @ 10:47 pm

  10. It’s really simple. When some big company or state rides into town with their lawyers the only defense an individual has is to hit them where it hurts: the pocket book (via boycots and public protests) and ballot box (via serious campaigning to retire all public ‘servants’ who passed this law. Impeachment works with Judges too.

    So the State thinks a company will raise more money do they? Not if they don’t get any customers because of the negative publicity and near constant presence of protesters.

    Find out how much a constant police presence will cost the City or State and use that to your advantage by making sure they need cops on hand at all times, 24/7/365. If they think they’re merely exercising their rights (to make a profit) exercise yours to cut into those profits.

    Comment by Joe — November 14, 2005 @ 11:40 am

  11. As to the merits of the case…. the law was clear *(until lawyers got hold of it and we all know lawyers never study philosophy only sophistry to the point that they quibble the meaning of “is”.) a government could only take land belonging to a citizen for PUBLIC use. I.e. a school, a road, a bridge, something all people would use.

    “Public use” has never ever been defined as “private use”.

    If states and cities want the right to seize ANY property and transfer it to a private owner for their own good (not a public benefit), that’s a de facto change of law without positive legislation.

    If this is a brilliant idea and good for the majority of Americans, go right ahead and pass a constitutional amendment and ‘get r done’. It’s this constant pulling rabbits out of hats via courts (changing the status quo) that is really annoying and will prod otherwise peaceful people into revolution (at least against lawyers and judges).

    Comment by Joe — November 14, 2005 @ 11:53 am

  12. Would eminent domain be considered or in play if there was no such thing as a property tax? Who really owns that house and land that you bought? Your town does and collects the rent on it every year. Don’t pay the rent (property tax) and they kick you out. Imagine if there wasn’t a property tax? Then it really is yours and no one will force you out even if you are poor. You can stay there forever.

    Comment by Bob — November 14, 2005 @ 9:31 pm

  13. #12-I don’t think eminent domain and property taxes are related. I’m pretty sure that eminent domain for “public purpose” is a right governments have regardless of whether property taxes are assessed, or whether assessed taxes are paid.

    #11-Of course a constitutional amendment would have been the honest way to go about it. But that’s just too hard, and too many voters and legislators elected by them get in the way of their grand designs.

    Comment by TBlumer — November 14, 2005 @ 9:53 pm

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