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The table below provides a graphic picture of the negotiating policies of the principal land acquisition agencies of the Federal Government, and in the principal federally assisted programs. More detailed information is included at chapter V.
Purchases in which the initial offer was less than the agency approved appraisal
and actual purchases at less than the agency approved appraisal
1 Data on purchases for urban renewal and low-rent housing were from acquisitions during the period Jan. 1, 1963 to Dec. 31, 1963. Data on purchases for Federal-aid highways were from acquisitions for the period Jan. 1, 1962 to Dec. 31, 1963.
3 This figure underestimates the amount since it covers only those 60 local public authorities that do not have a policy to make initial offers at the HHFA-approved appraisals. Others, of the total of 247 local public authorities purchasing property in 1963, make initial offers for some but not all properties at the HUFA-approved appraisal.
3 Data provided by the Bureau of Public Roads indicates that only 8 States followed the practice of offer. ing owners of some property less than the agency-approved appraisal, and only 1 State did it for most of its purchases.
: Data on purchases by this group were from acquisitions during the period Jan. 1, 1961 to Dec. 31, 1963 with the exception of the U.S. Army Engineers for which the time period was Feb. 1, 1981, to Dec. 31, 1963.
The Bonneville Power Administration purchased 2,828 of these, and in no instance did it offer less than the agency-approved appraisal. Complete data were not available for other minor acquisitions.
The largest Federal land acquisition agency is by far the U.S. Army Engineers. The corps acquires real property for all military programs of the Army and for civil works projects. Prior to 1960, the corps followed a "one price” policy. The corps stated practice was to obtain two appraisals for each property to be acquired and ordinarily to offer the property owner the higher of the two. Witnesses testified at hearings before the Senate Public Works Committee in 1960, that the corps policy was rigid and inflexible; that offers were made on a "take it or leave it” basis; that appraisers did not consult with property owners concerning the nature of the operations conducted on the land; and that, as implemented, the policy precluded any serious efforts to resolve reasonable differences of opinion concerning the value of property. As a result, the Congress enacted the Land Acquisition Policy Act of 1960 (74 Stat. 502). Section 301 of the act reads as follows:
DECLARATION OF POLICY
Sec. 301. It is hereby declared to be the policy of Congress that owners and tenants whose property is acquired for public works projects of the United States of America shall be paid a just and reasonable consideration therefor. In order to facilitate the acquisition of land and interests therein by negotiation with property owners, to avoid litigation and to relieve congestion in the courts, the Secretary of the Army (or such other officers of the Department of the Army as he may designate) is authorized in any negotiation for the purchase of such property to pay a purchase price which will
take into consideration the policy set forth in this section. Statements by the late Senator Case of South Dakota, and by the late Senator Kerr of Oklahoma, concerning the reasons for the Land Acquisition Policy Act follow.1
“Mr. Case of South Dakota. Mr. President, title 3 is the outgrowth of complaints which have come to the attention of members of the Committee on Public Works that in many instances acquisitions were being made which were unfair to the landowners, and that a policy was being followed of getting the appraisals which would be the bare physical value of the property based upon an examination of court records and sales in which there were a willing seller and a willing buyer.
"But we found that the following of that policy was throwing a heavy burden on the Federal courts. Persons whose homes were being taken for large public works projects, and who did not wish to sell their homes, and who had invested their life savings in that land, were being required to turn their property over to the Federal Government for amounts for which they would not willingly sell their property. We found that in many instances such persons were losing their homes and were losing their incomes and were losing their farms, and were receiving cash allowances which, although they might conform to bare market values, were not sufficient to enable those persons to become rehabilitated. We found that those persons were being dispossessed of their homes, and of their farms on which they were making a livelihood, and perhaps were required to pay a capital gains tax which would leave them in much worse financial condition than they had been in, and were left without funds with which to purchase replacement homes, much less with sufficient funds to be able to be guaranteed a livelihood.
"We found that as a result of that policy--and it was true to a very marked degree in my State—when large areas were being taken for huge reservoirs, hundreds of cases were coming up in the Federal courts, and the courts were clogged, even after the appointment of an additional Federal judge and the appointment of commissioners to handle these cases ; and in many instances there were long delays in taking the land and in making settlement for the land.
“The committee held hearings. Several witnesses came from Oklahoma, several came from Kentucky, and several came from South Dakota. They testified in such a manner that the committee was convinced that something must be done about this situation. The Corps of Engineers agreed to review the cases in which final settlements had not been achieved. The Department of Justice was consulted.
"I can state for the record-and I am sure the Senator from Oklahoma will concurthat the language embodied in title 3 as the land acquisition policy was prepared for us, at our request, in consultation with the Department of Justice. Both the House conferees and the Senate conferees were advised that the Department of Justice welcomed this lan. guage of title 3, believing that it would lead to relief of the congestion in the courts, and would save money for the Government, and would save money for the people whose property was being taken, by making it po ble to negotiate the settlements in many of these cases and to achieve justice for the landowners more quickly and without the delay involved by having cases taken to court.
"I hope the Senator from Oklahoma will confirm my statement about this matter and my statement that this language was acceptable and was prepared by the Department of Justice.
“Mr. KERR. Mr. President, the Senator from South Dakota is correct. The language was worked out after extensive consultation with the Bureau of the Budget and the Department of Justice, and after working out what all Senators concerned felt was a very much needed improvement in the land acquisition policy, and it was not only acceptable to the Bureau of the Budget and to the Department of Justice, but it was also urged upon the conference committee by the Department of Justice."
1 Excerpted from vol. 106 of the Congressional Record, p. 15413 (July 1, 1960).
In a letter dated November 26, 1960, to Assistant Secretary of the Army Dewey Short, Assistant Attorney General Perry Morton said:
In short, we believe that it was the clear and simple purpose of the congressional declaration that the Department of the Army should hereafter conform to a policy of prior-tocondemnation negotiations sufficiently flexible to avoid the undesirable consequences of your previously existing one price policy, with a view to avoiding acquisition by condemnation wherever that is consistent with fairness and justice to both the landowner and the Government, all proper matters
considered. It is evident from the above that the Congress did not intend, in enacting the Land Acquisition Policy Act, to provide for a practice whereby property owners would be offered less than the Army's approved value estimates.
After discussions and an exchange of correspondence with the Department of Justice, the Secretary of the Army approved a policy of "flexible negotiations." The development of the policy and its implementation were discussed at length during the subcommittee hearings at Paris Landing, Tenn., on August 1, 1963, and pertinent correspondence, implementing instructions, analyses of operations under the policy, and a tabulation illustrating the application of the policy to 100 tracts selected at random from lands acquired for the Barkley Reservoir are included in exhibits 22 through 28 of the printed Tennessee hearings.
Under the flexible negotiations policy, the corps abandoned its former practice of obtaining two appraisals and offering the property owner the higher of the two. Instead, it obtains one appraisal, sometimes from staff personnel and other times from contract appraisers, and after review and approval of the appraisal, authorizes the initiation of negotiations. Usually, an initial offer is made at an amount below the approved appraisal.
Of 34,442 tracts for which purchase contracts were obtained in 3 years of operation under the flexible negotiations policy, the Army made initial offers to property owners at less than its approved appraisal in 72 percent of the cases, and it acquired some 7,897 tracts, or 23 percent of all purchases, at less than its approved appraisals. Approximately 40 percent of the purchases were acquired at the appraised value, and 38 percent at prices above the appraisal.
It may be noted that, in the case of absentee owners, the corps policy is to deposit the appraised value with the court. Also significant are the responses to the following question which the Chief of Engineers directed to 34 district offices of the corps on February 28, 1962.
Question. Is any consideration given in advance as to whether or not landowner is informed or uninformed; represented or not represented by counsel, a qualified realtor, or a
person likely or unlikely to negotiate vigorously? The answer by all 34 districts was, “Yes.” One district answered: "Yes; consideration is given but it does not affect establishment of the amount of the initial offer."
Other Federal agencies that frequently try to acquire property at prices below their approved appraisals include the Fish and Wildlife Service and the National Park Service of the Department of the Interior and the General Services Administration.
Among the federally assisted programs, most State highway departments offer property owners the full amount of their approved value estimate. The Bureau of Public Roads has for some years encouraged this practice. In urban renewal and low-rent housing projects, a number of local agencies try to buy for less.
Witness after witness, testifying before the subcommittee, were critical of practices which provided less compensation for the property owner than the agency's approved value estimate.
Every property owner should be entitled to reasonable information concerning the agency's opinion of the value of his property, and he should be entitled to receive an offer for his property at the full amount of the agency's approved appraisal. Any other practice in a situation where, in effect, the owner must sell, is unfair.
Further, any other policy penalizes the uninformed owner as compared to the owner who is knowledgeable about property values; and it makes the amount of compensation more dependent upon the aggressiveness of the owner than on the value of his property,
A general practice of “trading on each property is undesirable and does not promote public confidence in Government land acquisition activities.
During a staff visit to the Carlyle Reservoir in 1963, subcommittee counsel asked a property owner whether he had settled with the Government. The answer was "no" since he had only received one visit from the negotiator, and would get two higher offers if he waited for the second and third visits.
Consideration has been given to "the Mayme Riley Problem” in which a private home taken for an urban renewal project was encumbered by trust notes for a total amount far greater than the market value of the real estate. Mrs. Riley purchased the property with a downpayment of $300, and invested an additional $887 in repairs or necessary improvements. The jury award was some $3,800 less than the purchase price of the property in 1951, plus the improvements. The third trust holder sued and obtained a deficiency judgment against Mrs. Riley for approximately $1,900.
Several years later, apparently in an effort to eliminate further litigation, the amount of compensation was increased by $850, pursuant to a stipulation between the United States, Mrs. Riley, and the third trust noteholder, with the latter agreeing to release his claim under the deficiency judgment.
Discussions with the District of Columbia Redevelopment Land Agency suggest that more than 100 of the properties acquired for the Southwest renewal project were encumbered at the time of taking in amounts greater than the market value of the real property.
There is an active market for second and third trust or mortgage notes, with second trust notes of this kind frequently selling at 50 to 60 percent of the amount of the debt, and third trust notes selling in the range of 30 percent of the debt.
It is suggested that more equitable treatment might be achieved, without distortion of the market value concept of compensation for property taken, if public agencies were authorized to pur
chase or condemn notes or other evidences of debt in such cases, as well as the real property, each at its market value. The Gov. ernment would pay the full fee value of the property; noteholders would receive the full market value of their notes, and could proceed to purchase other notes in the market. The purchase or condemnation of the note by the Government would terminate the right of the lender to claim continued interest. And the difference between the market value of the poverty and the market value of the notes would be paid to the property owner. This may be illustrated as follows:
Noteholders.-First trust note would be paid in full including interest and possibly any prepayment fee to which holder is entitled. Second trust note would
be paid substantially in full, and the second and third trust noteholders would be entitled to sue the property owner for deficiency judgments.
Property owner. -Property owner would receive no cash payment; he would be in debt for $3,000, plus interest on the notes to the dates of payment, and possibly, prepayment fees.
Effect of suggestion.-All note holders would receive "just compensation"-i.e., the fair market value of their notes, or a total of $7,500—homeowner would be free from debt, and he would receive $500 for his equity.
Additional illustrations and further details of the Mayme Riley case are included in chapter VII.
Provisions of the Internal Revenue Code relating to involuntary conversions sometimes result in inequities for owners of property taken for public use.
At present, the owner of land taken for public use can defer any recognition of gain on the compensation he receives by reinvesting in property of a like kind within a specified period. In general, this permits the owner to reinvest in any real property.
In large reservoir projects, for example, landowners sometimes have difficulty in finding comparable farms or ranches; or they have to move considerable distances in order to locate farms or ranches of comparable size in which to reinvest.
In some instances, the landowner would prefer to remain in the general vicinity and go into business. Frequently, the landowner has reached the age where he does not believe it physically possible to start a new farming or ranching life, and would prefer to retire to the city.
Under present law, unless the owner reinvests in real property, he may be required to pay a tax on the just compensation he receives for the property taken.