Opinion: Is “Inverse Condemnation” the Next Battleground for Reform?

R. William Potter | May 28, 2010
Too many property owners are still at the mercy of local governments thanks to an obscure legal maneuver

Local officials deem private property underutilized or “blighted,” declare it “in need of redevelopment” and transfer it to a “redeveloper” who promises to build an upscale project in its place.

Sound like an abuse of eminent domain? Fortunately, that’s how the New Jersey Supreme Court saw it three years ago, when in the case of Gallenthin v. Borough of Paulsboro it ruled such a seizure unconstitutional. Since then, courts have prevented many a municipality from using similar standards for declaring properties “blighted” and seizing them for “redevelopment.” [Disclosure: Our firm represented Gallenthin in that landmark case.]

Unfortunately, many property owners are still at the mercy of local governments thanks to a somewhat obscure legal maneuver known as “inverse condemnation.” And that means the campaign against abuse of eminent domain — which began in 2004 after the U.S. Supreme Court upheld the City of New London’s taking of a private home to make way for an office complex that was never built — must continue.

In New Jersey, inverse condemnation plays out this way. A property has been declared blighted but, post-Gallenthin, the local municipality doesn’t try to take it over because it knows the court will block any such attempt. Nor does it officially condemn the property, which would require it to pay the owner for purchase. But because the property is declared blighted, there is also little to no hope of sale to any other purchaser. No condemnation, no way to sell — which amounts over time to a de facto “taking,” since ultimately the only way out of this limbo is for the city to seize the property eventually.

More than 40 years ago the state Supreme Court described it this way: “There can be no doubt that a declaration of blight adversely affects the market value of property. This is unfortunate because in many instances the taking does not occur for a number of years. In the meantime, the owner can only wait for that ultimate taking; there is no market otherwise open to him for the sale of the property. In fairness, it is not enough to assure the owner that at some time, perhaps years hence, he will receive the market value of his land. Meanwhile, he and his family may well be imprisoned economically in a blighted area for many years.”

Think of what it would mean if your home or business was “imprisoned economically in a blighted area” for several years with no hope of sale or condemnation. I heard tales of such “imprisonment” at business conference last summer where I spoke on eminent domain.

The owner of a printing company told me he couldn’t get financing to expand his business to take on new orders. Why? He’s been in a blighted area for 15 years and no bank will touch blighted property.

A waterfront owner said he couldn’t build on his valuable land or sell to a developer because it was slated for condemnation that had not occurred for more than a decade.

Another business owner (a client of ours) has been in a blighted area since 1996, but the city has proclaimed it will never use eminent domain. And in the most heartbreaking case, a woman’s family needed to sell their beachfront home to pay for a medical operation but couldn’t do so because it was in a “blighted” zone dating to the mid 1990’s.

So what’s to be done? An eminent domain reform bill that died in the last legislative session had an automatic “sunset date” on blighted areas of five years. That’s still a long time to be “imprisoned economically,” but at least it would have promised eventual relief.

It’s time to remount efforts for such reform. It’s the only way to help trapped owners who now must either endure the “imprisonment” or turn again to the courts, the last bulwark against this continuing abuse of government power.