Lender-Involved Condemnation Part 1: Principles of Condemnation

by Baker Donelson

This is the first installment in a series of articles related to lender-involved condemnation.  This article provides an introduction to the principles of eminent domain and condemnation in a question and answer format.  The next installment will discuss these principles as they apply to lenders.  The final installment will develop a framework for managing lender risk and cost when the need to defend eminent domain litigation arises.

Eminent domain is the power of the government to take property.  This power has been delegated to states, counties, municipalities, utilities and others.  The Fifth Amendment of the United States Constitution and state constitutions require these entities to pay compensation and take property only for public use.

Condemnation is the exercise of the power of eminent domain.  The laws that set forth the procedures to exercise the power of eminent domain are of special importance because they offer certain protections.  They also set forth limitations that create certain challenges for property owners.  Most condemnations occur under the authority of state law and the laws of each state vary, so it is very important to know the relevant procedures and limitations.

What is a valid public purpose?

Roads, airports, sewer stations, water towers, schools, police stations and public transportation projects are all clear examples of a reasonable public use where the courts will find a justifiable exercise of the power of eminent domain.  However, many municipal development authorities have exercised the power of eminent domain to create industrial parks and other amenities whose benefit to the general public were not as obvious.  The widely cited 2005 decision of the Supreme Court of the United States, Kelo v. New London, 545 U.S. 469, resulted in a slew of state legislation that refined the states’ respective definitions of public use.  As a result of Kelo, 28 states passed legislation that restricted the definitions of public use or public purpose in that state.  The publicity and political fallout from Kelo served to reduce the instances of condemnation when the public use was questionable.  While it does happen occasionally, it has not been common to successfully defend a condemnation from an unlawful public use in recent years.

What can be taken?

Condemnations typically focus on interests in land.  However, the loss of essential rights to real property can also result in the destruction or diminution of a business.  Commonly taken interests in land include the entire fee interest, permanent easements, temporary easements and access rights.  Permanent easements can be taken for the purpose of constructing and maintaining an embankment to a highway.  Utility infrastructure can also be constructed on permanent easements.  Permanent easements may feature drainage structures like flumes and pipes.  Temporary easements are often taken for the purpose of disturbing an area during construction and they generally expire upon completion of the project or on a specified date.  The taking of a temporary easement can be utilized to link private driveways to a public road or to use a particular area to stage equipment.  Temporary easements are also taken to allow for the demolition of structures.  The right to access a particular property can also be taken and a taking of access often can render property worthless.

Can a taking be stopped?

Attempts to stop a taking fall into two general categories: procedural and substantive.  The statutes that allow governmental and nongovernmental entities to take property provide very specific procedures that must be followed to authorize a lawful taking.  Failure to follow those procedures precisely can nullify the taking so long as a timely objection is filed.  However, if there is a valid public purpose, a procedural roadblock to a taking will likely be cured.  Procedural attacks can be helpful if there are deadlines related to federal funding that would provide a source of leverage for a negotiated settlement.  While it is a good way to delay a taking and possibly obtain a source of leverage, a procedural defect is unlikely to permanently prevent a taking.

A substantive attack on the public purpose of a taking is more likely to permanently prevent the exercise of eminent domain and the taking of private property.  However, if the purpose of a project is to construct a road, a school, or any other plainly public use, this alternative will not be successful and it will result in a waste of resources.  Public purposes that are most suspect include the remedy of blight, urban redevelopment, industrial development, or any other instance where the end user of the property is a private entity who will have special interest in the property.  In these instances, there is a much better likelihood of stopping the project completely.  However, after the legislative reaction to Kelo, and as a result of the current economic climate, public entities have lost much of their appetite to exercise the power of eminent domain for suspect purposes.

When does title transfer?

The transfer of title varies by state.  Even within some states, the date that title transfers varies by condemnation procedure.  In Georgia, title to property transfers without a hearing or notice on the day the Georgia Department of Transportation files its declaration of taking and pays its deposit of estimated compensation into the registry of the court.  If that same property is taken by an electric company through the “special master method,” then title transfers on the day compensation is paid into court and a ruling is entered after a hearing before a special master.  The transfer of title varies by jurisdiction and method but there is a common thread.  The law typically allows the condemnor to obtain title to property and move forward with a public project so long as certain safeguards are met, because public policy dictates that a project be allowed to proceed with minimal delay for the good of the public.

How much compensation will I receive?

An owner of an interest in condemned property is entitled to compensation according to the Fifth Amendment.  A common standard for compensation is "just and adequate."  Just and adequate compensation has been defined in different ways, but it typically focuses on a measure of marketable value that would be appropriate if the same property were sold among members of the public who had typical market motives.  While property owners may be able to testify to value if they have had an opportunity to obtain an informed opinion, an expert real estate appraiser is often the expert who determines the amount of compensation available in the case. The appraiser may also be required to allocate the value among interested parties.  The allocation may be based on market metrics in the case of a below-market lease or a contractual arrangement between the parties in the case of a borrower and a creditor.

Attorney fees and the costs of litigation are not included in the measure of market value even though some states allow property owners to recover fees in certain instances.  The states that allow the recovery of attorney fees typically provide for recovery when the ultimate award is some percentage greater than the condemnor's estimate of compensation.  In the states where no attorney fees can be recovered, a property owner's compensation will be limited to the market value of the property taken.  Attorney fees and litigation costs must be deducted from that amount.


A working knowledge of the general principles of eminent domain is necessary when responding to a condemnation action.  Failure to grasp these issues can result in needless expense and exposure to unnecessary risk.  Financial institutions have specific set of risks when their secured interest is subject to a condemnation proceeding.  The next article will apply these principles to specific circumstances where financial institutions are responding to a condemnation action.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Baker Donelson | Attorney Advertising

Written by:

Baker Donelson

Baker Donelson on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.