After two years of negotiating with residential property owners, the Stanislaus County Board of Supervisors approved acquisition of the property by eminent domain.  The Modesto Bee reports that the board approved the acquisition of a single-family residence at its meeting on Tuesday in order to construct its Claribel Road project, which will cost the county $15.2 million.  The project will widen Claribel Road from two lanes to a four-lane separated highway relieving congestion and reducing the safety concerns of the current configuration, which causes an estimated 16 accidents per year.

The wrinkle in this situation, and something we see in our practice from time to time, is that the property owners purchased the property in 2004 and it is very underwater.  The county's offer of $85,000 does not come close to the $258,000 loan amount. If the owners cannot negotiate a higher value or be awarded that amount by a jury, they could be in trouble if the lender has the right to seek the full loan amount from them.

While this situation may fuel the debate about the amount a property owner should receive - the fair market value or the outstanding loan amount - the law only requires that the owner receive the property's fair market value.  When faced with this situation, I have seen owners simply walk away from an underwater property being condemned, leaving the lender to its own devices to battle with the public agency over just compensation.  But so far, the brave owners in Stanislaus County are hanging in there...