With Estate Planning in Depth 2025, you’ll gain a deeper understanding of today’s key issues in estate planning and administration. Hear from our national faculty as they delve into the tax and non-tax areas all estate planners need to know, as well as share their ideas on some of the more complex challenges estate planners currently encounter.
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When advocates for property owners take on an eminent domain case, they aim to achieve the best result possible for their clients. In some cases, that means fighting the taking. In other cases, the taking is inevitable, and the objective is to maximize compensation. Despite advocates’ best efforts, however, some property owners are inevitably left worse off as a result of the taking.
The goal of just compensation is to place “the property holder in as good a position as she would have been had the taking not occurred.”1 But just compensation—which is based on the “objective” standard of what a property would sell for on the open market—often does not achieve that goal, because owners “subjectively” value their property for more than it would sell for on the open market. That makes sense. If, after factoring in the costs and inconveniences of relocating, a property owner values his or her property less than the open market does, he or she would sell it.
This article explains why a subjective approach to just compensation would lead to more just outcomes for property owners, along with why implementing such an approach would be impractical. It then discusses ways some jurisdictions compensate property owners beyond the market value of their property to capture some of the intangible losses and make property owners closer to whole. Following that discussion, the article summarizes some of the more creative reforms academics have proposed to target this compensation conundrum.
The article concludes by suggesting that states pay displaced homeowners a multiple of fair market value based on how long the owners have occupied the home. That multiplier—based on the average difference between property owners’ subjective value and fair market value—would, on average, fairly compensate property owners and also incentivize condemnors to take property only when the value of the public project exceeds the owners’ subjective losses.
The Shortcomings of Basing Just Compensation on an Objective Standard
When the government condemns private property for public use, it is required to pay “just compensation” to the property owner.2 The theory behind this mandate is that no individual owner should bear the burden of paying for a project for which the public, as a whole, benefits.3 The requirement that the government pay just compensation also helps ensure that the government does not take property that is more valuable to the private owner than it is to the public at large.
As the Supreme Court has explained, “just compensation” is intended to place “the owner of condemned property ‘in as good a position pecuniarily as if his property had not been taken.’”4 In other words, the just compensation should make the property owner “whole.”5
Courts usually implement the compensation requirement through a “fair market value” standard.6 Although jurisdictions use varying phrasing, fair market value is generally defined as “[w]hat a willing buyer would pay in cash to a willing seller at the time of the taking.”7
The problem with this standard is that it does not make all property owners “whole.” A homeowner who is not actively selling his or her property is not a “willing seller” and likely values it more than the open market. Judge Posner described this well:
Compensation in the constitutional sense is … not full compensation, for market value is not the value that every owner of property attaches to his property but merely the value that the marginal owner attaches to his property. Many owners are “intramarginal,” meaning that because of relocation costs, sentimental attachments, or the special suitability of the property for their particular (perhaps idiosyncratic) needs, they value their property at more than its market value (i.e., it is not “for sale”). Such owners are hurt when the government takes their property and gives them just its market value in return. The taking in effect confiscates the additional (call it “personal”) value that they obtain from the property.8
The shortcomings of determining compensation using an objective standard are particularly pronounced in the residential context. As a straightforward illustration, consider a five-person family that has lived in a suburban home for many years. The children are friends with the neighbors across the street and are comfortable in their local public school. The parents renovated their home to support their hobbies—installing a golf simulator in the basement and garden in the backyard—and have purchased furniture that compliments the home’s unique layout. The family is comfortable and has no intention of moving, even before considering the inconveniences of physically relocating their personal possessions. This family is not a “willing seller” and would turn down offers for the home’s “fair market value.”
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Subjective losses also exist in the commercial context, even if they are not always obvious.9 For example, consider a family-owned pizza shop. The secret behind the business’s success—besides its charming décor, which includes walls adorned with Polaroids of local celebrities with the owner—is the brick oven, which the founder built himself using techniques he learned in his small hometown in Italy before immigrating to the United States. The current owner is the founder’s grandson and the third generation to own and operate the business. His fondest childhood memories are of his dad teaching him the art of pizza-making at the shop. Several businessmen have attempted to franchise the business and offered to purchase it based on multiples of its revenue and profits, but the owner has turned them all down without hesitation. Like the homeowners described above, the pizza maker is not a “willing seller” and would turn down offers for the “fair market value” of his property.
These examples illustrate some ways that just compensation based on an objective market value ignores the owner’s subjective losses. Property is unique, and the objective standard fails to account for the owner’s sentimental attachment to the property and its community and other idiosyncratic tastes. Compensation based primarily on market value also ignores the complications involved in relocating (not to mention out-of-pocket expenses such as attorney’s fees and closing costs that are often not recoverable).
CLICK HERE to read the full article, which was originally published in ALI CLE’s The Practical Real Estate Lawyer.
To find our more about ALI CLE’s in-person courses or webcasts, or to check out on-demand CLE, click here.
The rendering of a third-party legal opinion, like other attorney responsibilities in connection with closing a real estate secured finance transaction, involves professional liability risks.1 This article will discuss how an opinion preparer’s use of due diligence and the inclusion in its opinion of customary assumptions, qualifications, limitations, and exclusions (henceforth referred to as assumptions and qualifications) helps to minimize these risks.
As a third-party legal opinion is rendered to a non-client, normally malpractice liability is not involved. Instead, legal opinion claims are normally brought in an action by the opinion recipient based on a theory of negligent misrepresentation. While few lawsuits may be filed annually with respect to legal opinions, notable lawsuits have occurred, and significant judgments or settlements have resulted. Thus, the giving of legal opinions necessitates proper risk management procedures. In determining whether an opinion giver was negligent in preparing a legal opinion, courts often will look to the customary practice related to giving and receiving opinion letters.
The ACREL Attorneys Opinions Committee, along with Legal Opinions in Real Estate Transactions Committee of the American Bar Association Real Property Trusts & Estates Section and the Opinions Committee of the American College of Mortgage Attorneys (collectively, the Real Estate Opinions Committees), have been active over the years in providing guidance regarding customary practice in rendering third-party legal opinions related to real estate finance transactions. Two of the more influential reports issued by the Real Estate Opinions Committees are the Real Estate Finance Opinion Report of 2012 (the 2012 Report)2 and Local Counsel Opinion Letters in Real Estate Finance Transactions– A Supplement to the Real Estate Finance Opinion Report of 2012 (the Local Counsel Report).3 The 2012 Report and the Local Counsel Report go into significant detail regarding the due diligence required to render a third-party legal opinion and also discuss customary assumptions and qualifications typically contained in a real estate finance legal opinion. Each report contains an Illustrative Opinion setting forth model language to address both due diligence and forms of assumptions and qualifications.
Law firms seeking to minimize their professional liability risks related to opinions may establish policies and procedures related to their attorneys who issue opinion letters. Last fall the American Bar Association Business Law Section Legal Opinions Committee issued its Report on 2019 Survey of Law Firm Opinion Practices4 (the Report). The Report reflects the results of a survey of approximately 300 law firms throughout the United States regarding the policies and procedures law firms maintain with respect to their third-party legal opinion practice. As noted in the introduction to the Report:
Most law firms have policies and procedures for the preparation and delivery of legal opinion letters to recipients who are not their clients. The policies typically identify the opinions a firm is willing and unwilling to give, and the procedures establish the steps opinion preparers are expected or encouraged to take before they deliver an opinion letter on behalf of the firm. Firms often provide their lawyers with sample opinion letters and assign various responsibilities for the opinion letters their firm delivers to a committee or committees of the firm’s lawyers (an “opinion committee”).5
The Report also contains a discussion of selected areas of law that may or may not be covered in opinions given by various law firms in the country, including Delaware law opinions by non-Delaware lawyers, laws of other states besides Delaware where the opining lawyer is not admitted, UCC opinions, no-litigation confirmations, no breach or default opinions, and the enforceability of arbitration clauses.
While strong firm policies and procedures can help reduce the professional liability risks in rendering third-party legal opinions, the actual wording of the legal opinions and the due diligence performed in preparing the legal opinions are essential parts of professional liability risk management.
Over the years, various bar associations, committees, and others have tried to develop guidance and protocols with respect to rendering legal opinions. This has evolved into what is referred to as customary practice. Under customary practice, the meaning of the words used in an opinion letter, and the diligence required to provide such an opinion letter, are determined by the customary practice of lawyers who regularly give and receive such opinion letters. The Real Estate Opinion Guidelines6 provide valuable guidance regarding customary real estate opinion letter practice.7 As customary practice may vary due to regional or practice-related differences, it is not always possible to precisely identify what is customary practice. Reports by bar groups and opinion committees are helpful in identifying customary practice in certain areas. Also, the Customary Practice Statement,8 which has been adopted by numerous bar associations and groups, including the Real Estate Opinion Committees, summarizes opinion letter customary practice.9
A main reason for the focus on customary practice is to enable opinion givers and opinion recipients to understand the generally accepted meaning of words normally used in legal opinions and what due diligence is needed in order to render specific legal opinions. Since the words in a legal opinion can create risks to the opinion giver, and the failure to perform adequate due diligence can also create risks, the various opinion reports have extensive discussions of what is meant by customary practice, what the words used in a legal opinion mean, and what due diligence is required to satisfy the customary practice standards of lawyers rendering opinions.
CLICK HERE to read the full article, which was originally published in ALI CLE’s The Practical Real Estate Lawyer.
To find our more about ALI CLE’s in-person courses or webcasts, or to check out on-demand CLE, click here.
Multitasking is a word, and unfortunately a process, well-known to lawyers. Recently, when a young colleague boasted how well he multitasks, my inner voice groaned. I debated whether to argue or retreat. Rather than challenging the self-confidence of the younger lawyer, I moved on. My experience is that the proponent of an opinion not grounded in science may already be thinking of something else by the time I formulate a response with kind words. I imagine the erroneous thoughts of others pinballing around from target to flipper to target in a random manner. My belief is that the training and practice of law has our minds set to spring into defensive or offensive action to meet any suspect statement or query. It is the nature of the business we have chosen.
In case anyone is uninitiated in the concept, multitasking involves either doing more than one task simultaneously or juggling several things at the same time. The first published use of the word multitask appeared in an IBM paper describing the capabilities of the IBM System/360 in 1965. Science commonly refers to it as task switching or dual tasking. Task switching involves shifting one’s attention from one thing to another. Dual tasking is dividing attention among multiple things at once. The reality is that our mental ability is limited to one thinking function at a time, so the cognitive process is continual not continuous. It is serial shifting rapidly back and forth between tasks rather than part of our brain doing one task and a different part doing another simultaneously. In short, two or more mental activities are not being done precisely in an overlapping manner. Decisions are made in succession with imperceptible time gaps separating them.
This is distinguishable from mental and physical activities, which do occur in a simultaneous way. We can and do chew gum and walk at the same time. Automatic and default “decisions” are preprogrammed and may occur without conscious choice. We can drive while listening to music and thinking about the next moves in the case-at-hand without incident. If we are proficient at two tasks, then rapid attention shifts can efficiently occur, but it is likely there is still a loss or waste of energy compared to performing each task to completion independently. Multitasking can result in time wasted due to human context switching and becoming prone to errors due to insufficient attention. It can also affect our well-being.
Gloria Mark, a professor at the University of California, Irvine, and a leading researcher on attention and multitasking, states: “The science consistently shows that multitasking causes stress — our blood pressure rises, our heart rate increases — and this matches our own perception that we feel more stressed. Even our immune response against disease has been shown to weaken when we multitask.”
The research by Mark and others illustrates some of the other downsides to multitasking. Trade-offs and adjustments are inherent in multitasking. The term psychological refractory period (PRP) is the time frame during which the response to a second stimulus is significantly slowed because the first stimulus lingers during the transition. This causes a delay in response time that may have negative effects on the deliverables of the new task. The brain is unable to fully engage on the one task at hand, allowing errors and a slower completion time. The brain must restart and refocus, with a risk of not being able to pick up at an optimal place or forgetting critical data. A study showed that in the interim between each exchange, the brain made no progress. Other research has shown that the interruptions may create intrusive or disruptive thoughts on irrelevant matters during the transition period.
A small study of seven participants suggests that there are people who can learn to become better at multitasking. In this 2008 study, individuals initially performed poorly but, after some training, were able to adeptly perform the tasks simultaneously. Their brain scans showed that the prefrontal cortex quickened its ability to process the information. The study, however, also indicated that the brain is incapable of performing multiple tasks even after extensive training, concluding that while the it can become adept at processing and responding to certain information, it cannot truly multitask.
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