Inverse Condemnation

Inverse condemnation is a far more complex subject than it may seem at the outset. While condemnation proceedings are initiated by the government to acquire property and pay the owner just compensation, the general rule regarding inverse condemnation is that the owner of the property, and not a government entity, seeks to recover damages for a loss in value of the property as a result of governmental action. There are several avenues from which this type of action can arise, as there are multiple ways property can be affected by government activity. Rather than there being a cut and dried standard for what inverse condemnation looks like, each case involving it arises is based on a set of unique factual circumstances.

Inverse condemnation cases generally are initiated when a property owner sues a governmental entity because some action taken by that entity causes a profoundly negative impact on the property. For instance, a governmental restriction on certain types of development can effectively render certain property worthless. This can substantially damage owners who may have longstanding plans to develop the property, because it deprives them of economically-viable use of the property. Such conduct on the part of the government can be considered a de facto “taking” of the property under the Fifth Amendment, even if the government does not actually condemn or take possession of the property. A forced transfer of ownership is not necessary, and indeed one of the hallmarks of inverse condemnation is that the government usually does not take possession of the property permanently.

Yellow Cut truck on the highway construction in front of airport

While the suit in an inverse condemnation case generally begins with the property owner, this is not always the case. In the 2010 Kentucky case of Baston v. Kenton County Airport Board, for instance, the makings of inverse condemnation arose during proceedings in a condemnation suit brought by the Airport Board for Mrs. Baston’s long held property. The Airport Board attempted to buy Mrs. Baston’s property in 1995 as part of a “noise mitigation” effort, which she declined. In 1997, the Airport Board announced its intention to condemn the property for construction of a new runway. The project wasn’t approved until 2001, however, and Mrs. Baston was not required to turn the property over to the Airport Board until 2003. The condemnation proceedings began in 2005. At issue in Baston was the value of the property being condemned, and the novelty here is that Mrs. Baston’s position was that the property was inversely condemned before the actual condemnation, as announcement and widespread knowledge of the Airport Board project stifled development on property that would be acquired by the Board, depressing the fair market value. It’s a subtle argument, but one ultimately upheld by the Kentucky Supreme Court. The actions of the Airport Board had a profound effect on the value of the property prior to condemnation, so the fair market value of the property at the time of the taking did not reflect the full extent of the effect of the taking.

Zoning regulations that control uses, setbacks and similar matter are sometimes challenged under a regulatory takings claim, but such efforts do not generally succeed. The standard of review that courts use to determine the validity of such regulations is a high hurdle for those claiming a taking, especially because the one claiming the violation has the burden of proof to show harm. Courts will uphold the regulation if the regulation is shown to be rationally related to a legitimate government interest. If such a nexus is present Courts will not find a taking, and the regulation will be upheld as a legitimate exercise of governmental power.

If you believe government action has substantially changed the value or nature of your property, contact the attorneys at McBrayer to help determine if an inverse condemnation action is necessary.

CWestoverChristine Neal Westover is an attorney in the Lexington office of McBrayer. Ms. Westover has extensive experience practicing law in both the public and the private sector. The focus of Ms. Westover’s experience and area of practice is land use law since her assignment in 1991 as legal advisor to the boards, commissions and divisions of government within Lexington Fayette County on all matters related to planning, zoning and land use law. Ms. Westover has an extremely deep and broad expertise of the laws governing land use in Kentucky and the procedural and substantive complexities that underpin planning and zoning matters. She also has significant experience dealing with governmental divisions such as Building Inspection, Code Enforcement and other administrative bodies due to their regulatory authority in land use matters. Ms. Westover can be reached at cwestover@mmlk.com or (859) 231-8780, ext. 137.

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The Obergefell Decision and Property Considerations for Married Same-Sex Couples

In Obergefell v. Hodges, the United States Supreme Court, in a 5-4 opinion, determined that prohibitions on same-sex marriage are an unconstitutional infringement of Fourteenth Amendment rights. This decision throws the doors open for same-sex marriages, affording same-sex married couples the same rights and privileges only enjoyed by opposite-sex couples until recently. This expansion of marriage allows same-sex couples to take advantage of certain legal benefits, and property law is no exception. Same-sex married couples may now hold property in a tenancy by the entirety, a form of title available exclusively to married couples owning together.

Tenancy by the entireties is a rather unique form of title to real property. While a tenancy by the entireties is not an automatic presumption in Kentucky for married couples and must be created using specific language, both spouses in a tenancy by the entireties own the full extent of the property, rather than in a joint tenancy or tenancy in common, where the interest of each is severable during a marriage. This form of estate comes with an automatic right of survivor ship – when one spouse dies, his or her interest ceases to exist, and the surviving spouse retains the full interest in the property. This is useful for a few reasons, not the least of which are avoiding probate, intestate succession or any sort of estate taxes on the property.

House Exterior. Entrance Porch And Front Yard ViewIn addition to survivorship, tenancy by the entireties provides a unique form of asset protection. Essentially, a creditor of only one spouse cannot attach and execute against the property if the other spouse is a non-debtor. The judgment creditor can, of course, attach and execute against the debtor’s contingent property interest, but that cannot affect the present possessory interest of the non-debtor.[1] If the debtor spouse dies before the non-debtor spouse, the death extinguishes the contingent property interest, and even though the lien is still valid as against any interest owned by the decedent, execution is no longer available to the judgment creditor. The judgment creditor cannot force a sale of the property to satisfy the judgment.

Tenancy by the entireties only affords this asset protection while a couple is married. If they divorce, the estate becomes a tenancy in common, and each former spouse’s interest is then fair game for creditors.

Additionally, same-sex spouses now have dower and curtesy rights to property in Kentucky, meaning that a surviving spouse has an estate equal to one-half of the real property owned by the deceased spouse at the time of death if the spouse died intestate. Of course, a surviving spouse in Kentucky may renounce the will and take the dower and curtesy share as if the deceased spouse died intestate.

For more information on how all married couples can take advantage of this form of asset protection through property ownership, contact the attorneys at McBrayer.

CRichardsonChristopher A. Richardson is an associate at McBrayer, McGinnis, Leslie & Kirkland, PLLC in the Louisville, KY office. Mr. Richardson concentrates primarily in real estate, where he is experienced in residential and commercial closing transactions, landlord/tenant relations, and mortgage lien enforcement/foreclosure. Mr. Richardson has closed innumerable secondary market and portfolio residential real estate transactions and his commercial practice ranges from short-term collateralized financing and construction lending to development revolving lines of credit. He can be reached at 502-327-5400 or crichardson@mmlk.com. This article is intended as a summary of  federal and state law and does not constitute legal advice.

[1] See In re Brumbaugh, 250 B.R. 605, 608 (Bankr. W.D. Ky. 2000).

The Newest Sign for Some Sign Ordinances: Stop

Sign ordinances and regulations are a fixture of city and county zoning and land use regulations, designed to prevent unattractive clutter from obstructing the public view. In creating these regulations, however, local governments run the risk of infringing some of the most basic constitutional rights. Signs inherently include a component of speech, and regulation of the former may unintentionally interfere with the latter. The town of Gilbert, Arizona, learned this lesson the hard way in the recent U.S. Supreme Court decision of Reed v. Town of Gilbert.

a photo image of a business man's hand with a stop sign ** Note: Slight graininess, best at smaller sizes

Gilbert enacted a comprehensive sign code that governed the display of virtually all varieties of outdoor signs. This code divided the signs into several categories, such as “Temporary Directional Signs Relating to a Qualifying Event,” “Ideological Signs,” and “Political Signs.” A local community church lacked a permanent meeting space, so they would post signs on Saturday morning and remove them around noon on Sundays to direct the public to the location of their services for any given week. The town’s Sign Code compliance manager cited the church twice for exceeding the time limits (twelve hours) for displaying temporary directional signs. The church tried to ask the city for an accommodation, but was unsuccessful. The church was told that there would be no leniency under the code.

The Supreme Court, in a unanimous decision, held that the Gilbert’s sign ordinance was an impermissible content-based regulation of speech and did not survive strict scrutiny review. The court said that, “Government regulation of speech is content based if a law applies to particular speech because of the topic discussed or the idea or message expressed.”[1] The sign ordinance in effect in Gilbert literally created distinctions among signs based almost entirely of the content of the signs, creating separate rules for different classes of content. Any restrictions on signs depended entirely on the communicative content of the signs themselves, a step the court said went too far. It made no difference to the court that the sign code itself did not discriminate among viewpoints or that there was no evidence of differential treatment between differing viewpoints or discriminatory application of the code. The sign code in Gilbert made content distinctions on its face, and was therefore a violation of the First Amendment.

The actual impact of Reed is subject to substantial debate, even among the Supreme Court Justices themselves. While all the Justices agreed that Gilbert’s regulations went too far, the appropriate standard or review was a hotly debated topic. Justice Alito believes that the Court’s application of strict scrutiny review “will not prevent cities from regulating signs in a way that fully protects public safety and… legitimate esthetic objectives,”[2] but Justice Kagan theorizes that because of the harsh standard applied, the Supreme Court “may soon find itself a veritable Supreme Board of Sign Review.”[3]

What is clear from Reed is that any government entity with a sign code, ordinance, regulation or the like should study its outcome very carefully. Distinctions based upon the communicative content of the sign are now clearly impermissible after this case, and local governments would be well advised to review their sign regulations with a fine-toothed comb. The attorneys at McBrayer can assist with that process, keeping all land use ordinances, even sign regulations, compliant with changing areas of the law.

Jacob C. WalbournJacob C. Walbourn is an associate in McBrayer’s Lexington office. Mr. Walbourn focuses his area of practice on planning and zoning law handling a wide variety of land use matters for clients in the private sector. His responsibilities include attending Planning Commission and Board of Adjustment hearings and working with developers, business owners, and government agencies on land use applications, zoning ordinance text amendments, comprehensive plan updates and other land use issues. He can be reached at jwalbourn@mmlk.com or (859) 231-8780, ext. 102.

[1] Reed v. Town of Gilbert, 576 U.S.___(2015) at 6.

[2] Id. at 2 (Alito, J. concurring).

[3] Id. at 6 (Kagan, J. concurring).

Beyond the Commercials: Understanding Reverse Mortgages

You have likely seen the commercials for reverse mortgages. While the advertisements urge viewers to “call now to secure you reverse mortgage today” and make them seem risk-free, obtaining a mortgage of this type is a serious decision that should not be made without fully understanding its pros and cons.

A reverse mortgage is a loan available to homeowners who are 62 years or older that enables them to convert part of the equity in their home to cash, ideally to cover basic monthly living expenses and pay for health care (though there is no restriction on how proceeds can be used). The amounts that can be borrowed are determined by a formula that takes into account the percentage of the home’s value based on the borrower’s age and current interest rates.

With a traditional mortgage, the borrower makes payments to the lender. The reverse mortgage “reverses” that payback stream so that the lender makes payments to the borrower in the form of a steady stream of income (annuity), a lump sum payment or a line of credit he or she can draw on. The loan is not required to be paid back until the home is sold or vacated. If the homeowner(s) die, the loan must be paid back either through the sale of the home or with other funds from the borrower’s estate. If the loan amount exceeds the value of the home when the loan comes due, the house becomes the property of the lender. Reverse mortgage terms mandate that borrowers continue paying property taxes and homeowner’s insurance, so default on the loan is still possible even though there are no monthly payment obligations.

Home Equity Conversion Mortgages (HECMs) are by far the most popular types of reverse mortgages. HECMs are created and regulated by the U.S. Department of Housing and Urban Development. A HECM is not a government loan, but is issued by a private bank and insured by the Federal Housing Administration. In recent years, the HECM program has experienced increasing defaults and it was discovered that many borrowers are confused about what a reverse mortgage really is (thanks, at least in part, to deceptive advertising common in those TV commercials). Instead of using the loan as a long-term financial tool, borrowers were using it as a last-ditch effort to manage a money crisis.

As a result, in 2013 many reforms were brought to the HECM program. The major changes included:

(1)   Limiting the amount of money that can be disbursed at closing or during the initial year after closing;

(2)   Requiring a financial assessment before granting loan approval so that borrowers demonstrate their ability to meet all their housing obligations, like taxes, insurance, and maintenance.

(3)   Requiring set asides for payment of property taxes and insurance out of line of the credit or tenure/term payments for some borrowers.

Beginning in April of 2015, changes to the HECM program require lenders to conduct a financial assessment of every reverse mortgage borrower to determine if the borrower has enough money to pay ongoing costs, such as property taxes and homeowners insurance over the life of the loan.

Hopefully, the changes will improve the program and help seniors use reverse mortgages in the way that they were intended to be used. If you have a question about your home mortgage, contact a real estate attorney at McBrayer today.

BMacGregor Brittany C. MacGregor is an associate attorney practicing in the Lexington office of McBrayer, McGinnis, Leslie & Kirkland, PLLC. She is a graduate of Transylvania University and the University of Kentucky College of Law. Ms. MacGregor’s practice focuses on real estate law, including title examination, title insurance, clearing title issues, deeds, settlement statements, preparation of loan documentation, contract negotiation and preparation, and lease negotiation and preparation. She may be reached at bmacgregor@mmlk.com or at (859) 231-8780.