What home and business owners have to look forward to

A few months back, STRIDE members voiced concerns that the mostly low income and minority home owners whose houses will be demolished by the Excess Project would not be likely to receive fair market value for their homes. In response, Smith Parker staff pitched arguments that MnDOT is required by state law to provide fair compensation, etc., and other Excess Project supporters found it necessary to accuse "leftists at STRIDE" of being "against the market economy". (If STRIDE is leftist, does that make the PAC fascist?)

Fortunately we do not have to rely exclusively on the PAC & Smith Parker for information. Yesterday's article in the Star Tribune supports STRIDE's argument.

Examples in the article occurred in the metro as well as in the rural areas. The Star Tribune article follows below:

MnDOT's tactics squeeze landowners

published 09.22.03

online at http://www.startribune.com/stories/462/4109734.html

by Dan Browning

Star Tribune

For years, the Minnesota Department of Transportation has taken private land for road projects and offered the owners substantially less than the land was worth. Many times, MnDOT did so while concealing information suggesting that the land was worth far more.

Outraged property owners say these "low-ball" offers have compelled them to spend thousands of dollars to get their own appraisals, hire attorneys and fight for a fair price for land they didn't even want to sell.

The process can drag on for years. Meanwhile, MnDOT takes the land and, at least initially, pays only what it says is appropriate.

On occasion, MnDOT has commissioned two or more appraisals on a piece of property and then offered the lower amount. But it didn't tell property owners about the higher appraisals. And until forced by a change in state law this summer, MnDOT refused to show any appraisal to landowners -- even the one on which it based its offer -- unless the matter was settled or went to court.

Property owners say the high cost of fighting has forced many of them to settle for less than they deserve. And some who eventually recover what the land is worth still come out behind, financially.

That's because unlike many other states, Minnesota doesn't reimburse them for their legal expenses.

And it reimburses them only a limited amount for appraisals.

MnDOT's practice of concealing its appraisals is a longstanding policy that predates the past several administrations. It has frustrated home-and business owners for years.

Frustrations erupted recently in Rochester as MnDOT rushed to acquire several hundred homes and businesses for two highway projects.

And the problem will likely recur as the state takes on increasingly ambitious road projects -- many in developing areas around the Twin Cities.

MnDOT's need for private land affects people all over the state.

Lee and Pat Kerber had never intended to move from their home near Chanhassen, but MnDOT needed it to widen Hwy. 5. The agency offered them $175,000 for their 3 acres. The Kerbers fought and eventually won $420,000 from MnDOT -- but they had to pay $53,000 in attorney and appraisal fees out of their own pockets.

MnDOT offered Gary Kellner $319,257 for a piece of his land near Rochester. Kellner said no way, his land was worth considerably more. A year later, negotiations continue. MnDOT has recently offered him $698,400, but Kellner has an appraisal saying it's worth $1.5 million and is holding out.

And David Luse fought MnDOT all the way to district court. Three years ago, MnDOT gave him $312,000 and took just over 5 acres in Chanhassen that he and his wife had owned for more than 20 years. His own appraiser said it was worth $1 million.

Luse didn't know that MnDOT had five appraisals on his land, ranging from $312,000 to $744,000. They revealed only one -- for $645,000 -- and then only after he forced the agency into court.

Karl Rasmussen, MnDOT's top right-of-way engineer, said re-appraisals often come in higher because they need to stand up in court.

"Let's call it what it is: two categories of appraisals," he said. "And the appraisal that's done the second time around is a lot more exhaustive."

But Luse, 47, a former Eden Prairie City Council member, had another explanation: "They low-ball. . . . How can the state do this to people?"

In the end, MnDOT paid Luse $845,000, but he had to pay $100,000 to lawyers and appraisers to get it.

MnDOT officials say they follow federal rules. The agency bases its offers on independent appraisals that MnDOT orders. MnDOT staff members then examine the appraisals and certify them as fair. These "certified" appraisals are the basis for the offers MnDOT makes on property.

When a property owner challenges MnDOT's offer, the two sides try to negotiate a compromise. If none can be reached, the dispute goes to a panel of three commissioners. The commissioners' duty is to determine the property's fair market value. Either side can appeal the commissioners' decisions to district court.

The Star Tribune analyzed MnDOT's computer records covering more than 1,200 cases since the late 1980s in which disagreements over land value were decided by court-appointed commissions. In two-thirds of those cases, the commission determined that property owners deserved at least 20 percent more money than MnDOT first offered. In a third of the cases, the award was at least double.

Defining value
MnDOT says it is doing the best job it can under difficult circumstances. As the Twin Cities area gets more congested, residents demand more and wider highways. That means taking more homes and businesses.

And in a time of budget cuts and a weak economy, MnDOT must take care to protect taxpayers from land speculators and cost overruns.

At the same time, MnDOT must abide by the U.S. Constitution. The Fifth Amendment says government may not take private property without "just compensation." The Supreme Court interpreted that phrase in 1893 when it said the government must pay "a full and perfect equivalent for the property taken."
MnDOT officials say they try to do just that.

Rasmussen said the past seven or eight years "have been crazy in the real estate market," leading some owners to overestimate their land value.

"And contrary to a lot of people's belief, appraising is an art and not a science," he said. "You can have two or three appraisers . . . look at the same piece of property; you might have a great big spread between the three values."

Rasmussen said MnDOT has tried to become more "user-friendly." In the 1960s, MnDOT took about 40 percent of its properties through condemnation -- that is, taking the land and hashing out the payment in court.

"And the feds encouraged us to be more, I'd say, 'negotiable' with people," he said. By the 1980s, MnDOT's condemnation rate was down to about 25 percent.
Allan Pint, a longtime MnDOT employee who has led the Land Management Office for about a year and a half, said he believes the agency has always tried to be fair. In the past six years, 83 percent of MnDOT's 4,953 land purchases were settled out of court. Pint says Luse's case was an anomaly.

A six-month investigation by the Star Tribune found otherwise.

The newspaper reviewed agency summaries on 847 condemnation cases and 4,106 "direct purchases" and settlements since 1998. A MnDOT database containing more detail on condemnations also was examined, though many of the cases lacked complete data. More than a dozen individual deals were examined.

MnDOT's files show that when the agency gets two appraisals on a piece of property, its reviewers often pick the lower one. It's impossible to say how frequently that happens, though, because MnDOT's computerized appraisal records are incomplete.

Agency officials acknowledge that their record-keeping is flawed. They said they are changing to a new computer system and are trying to resolve such problems.
MnDOT review appraiser John Callahan, however, says he and his colleagues do not automatically choose the lower appraisal. He said they choose the valuation they believe is "reasonable and supportable."

Callahan, who has reviewed appraisals for 14 years, said it's hard to say how often he picks low or high. He provided six examples in which he had recommended the higher of two appraisals, and seven in which he recommended his own, higher figures.

"There's nothing in it for me," he said. "I don't get any kickbacks."

Still, MnDOT's data show that the appraisals it selected usually were below the amounts deemed fair by commissioners. The amount commissioners awarded land owners between 1998 and 2003 was 66 percent higher than MnDOT's appraisals.

That didn't surprise Walter Carpenter, a former president of the Minneapolis Park and Recreation Board who has lost several pieces of property to MnDOT. He said he believes appraisers know what MnDOT expects -- "40 or 50 percent of market value" -- and they often produce it.

"And you have to go out and get your own guy that's going to come in as high as he possibly can without really stretching it . . . and hope that you're going to meet somewhere in the middle," Carpenter said. "This appraisal business is a game, is all it is."

MnDOT officials and several appraisers strongly denied such accusations. No one ever suggests to an appraiser what the value of a piece of land should be, they said.

Carpenter's cynicism comes from experience.
In April 1998, MnDOT took 3 acres of his land for construction of Hwy. 212 through Eden Prairie. At first, the agency's certified appraisals for his two parcels totaled $840,000; that climbed to $852,000 before the commissioners' hearing. Carpenter said MnDOT never informed him that it had two additional appraisals totaling $1.24 million.

Commissioners decided that the fair price for Carpenter's land was $1.23 million. Carpenter appealed and settled for $1.46 million in April 1999.

"They ought to be willing to pay a fair market value at the outset, and they would eliminate all this fooling around," he said.

Sophisticated owners can fight MnDOT, he said, but the agency exploits "the ma and pa guys" who don't understand the system.

Hard bargains
State condemnation laws give the government an advantage. Records and interviews with property owners and their attorneys indicate that MnDOT uses that advantage in several ways:

• Once a judge determines that MnDOT needs land, the agency nearly always pays the owner the amount of its chosen appraisal and takes the land. This is known as a "quick take." Owners then wait as long as 270 days for commissioners to hear their case. After paying off their mortgages, some landowners have little money left for attorneys or appraisers.
• If the commissioners' award is appealed, MnDOT must pay the landowner only three-fourths of the award until the case is resolved. This can take months.
• MnDOT trains its purchasing agents to try to obtain a copy of the property owner's appraisal. But until it was forced to change this summer, the agency had a policy against sharing its own appraisals with property owners unless the matter went to court or was settled.

MnDOT handles condemnation cases differently from other public agencies, said Ken Moen. He's a former Rochester assistant city attorney who now has a private practice heavy with condemnation cases.

Moen said he can't recall a case in which the city of Rochester, Olmsted County, Dodge County or Wabasha County wouldn't share appraisals to help smooth negotiations.

"With MnDOT," he said, "I've never had them do it."

Moen said MnDOT's practices waste time and money.

"This is a crazy system," he said. If a highway project is for the public good, the public ought to pay for it, he said. "It shouldn't come at the expense of somebody who happens to get in the way."

Moen testified this year in favor of the new state law requiring public agencies to turn over appraisals to property owners before they begin condemnation for transportation projects.

The law took effect in June, and MnDOT now turns over the certified appraisal when it makes an offer. But the agency said it still is not required to reveal the existence of any other appraisals while a case is pending. And the agency won't release the work sheets of its in-house reviewers in which they explain why they selected an appraisal.

Rasmussen, MnDOT's right-of-way expert, said the agency's procedures are designed to protect the taxpayer.

That argument has worn thin for some.

"Everybody says they're all working for the taxpayers' best interest. First of all, to hell with the taxpayers, 'cause I'm a taxpayer," said Gary Kellner, who is losing access to his home, a business office and a workshop to make room for the widening of Hwy. 63 south of Rochester.

Kellner has owned the 4-acre site for 10 years. By stripping several feet of frontage from his property, MnDOT has turned his land into a virtual island.

The agency initially offered him $319,257 in compensation. But after Sen. Sheila Kiscaden, IP-Rochester, got involved, the agency identified his case as a "priority" and more than doubled its offer to $698,400.

Kellner figures he'll end up getting about $950,000. But his legal fees must come out of that, and he said he took out a loan to pay his $16,000 appraisal fee.

"Why should I pay for this road on my back? If you wanted to come in and buy my land, you and I would sit down like gentlemen and we would be realistic," he said. "You wouldn't come in and low-ball me and say, 'If you don't like it, I'm going to get your land anyway.' "

MnDOT: Most satisfied
MnDOT is the second-largest owner of state land behind the Department of Natural Resources. It spent or reserved $112 million to pay for 1,355 right-of-way acquisitions in fiscal 2003, which ended June 30. This year, a huge road-building program is expected to consume as many as 1,400 parcels.

Rasmussen said the Federal Highway Administration reviews MnDOT's property acquisition process and has found few problems.

Records show the administration has reviewed MnDOT's process once in the past 10 years. Its review, in 2001, pronounced MnDOT "fully adhering" to regulations.
That review looked at just 19 of MnDOT's 660 acquisitions that year.

Pint and Rasmussen also cite the department's annual Property Acquisition Survey as evidence that most owners approve of the way MnDOT handles acquisitions. Only 5 percent of the respondents said they were dissatisfied with the process in 2002.

But Pint and Rasmussen acknowledged that the results are not statistically valid because questionnaires were given only to owners who agreed to sell; none went to owners who got court awards.

"I think it's still important to remember that 85 percent of our cases get settled by direct purchase," Pint said.

MnDOT, however, includes in its direct purchase numbers the cases that went to condemnation but were settled before a court award.

Fewer than half of MnDOT's direct purchases in the past six years were resolved without dispute. Sixty-five percent of the direct-purchase cases were resolved through administrative settlements, according to the newspaper's analysis.

Rasmussen said the department is settling more cases now in part because of political pressure to build roads faster.

MnDOT officials say they have never analyzed the work of the appraisers they use to determine whether some are too conservative, but Pint said he trusts his staff's judgment. "They've all got 20 years in this business, so they know," he said.

An examination of MnDOT documents also raises the question of whether the agency's senior officials have tried to shortchange property owners.

In December, for example, MnDOT notified Ragan-Hexum Properties Inc. of Rochester that it needed the land on Hwy. 52 where its Smiling Moose Restaurant stood. MnDOT offered $1.14 million. Ragan said the land was worth nearly three times that.

MnDOT officials privately concluded that the property was worth as much as $2.75 million. But the purchasing agent's notes say agency supervisors told him to offer $2 million and to go higher only if Ragan held fast.

Ragan did hold fast, and MnDOT paid him $2.75 million in April.

Ragan sent a note thanking MnDOT for being so reasonable, which the agency said was evidence that many owners approve of the way it handles property acquisitions.

Pint did not respond to a request for comment on the matter.

Highway hits home
MnDOT encounters fewer disputes over home values than over the value of commercial property. So many houses are bought and sold that it's relatively easy to determine the market value.

Complaints do arise, though.

Frank and Darlene Peters bought an acre of land on a wooded hilltop near Rochester 30 years ago. They built a house from a sketch that Frank had made in high school. He did much of the work himself, and they had the place paid off in four years.

Last year, MnDOT announced it was going to take half of their land -- including a stand of old red oaks and some white ash trees that shield the house from the sound of traffic along 40th Street.

MnDOT's plans would bring the road to within 25 feet of their front door. The agency offered them $79,600.

Frank Peters, 78, said the money wouldn't even cover the repairs he would have to do -- including sinking a new well, resurfacing the driveway, landscaping the remaining bit of front yard.

Darlene Peters, 67, said she and her husband enjoy sitting on their second-story porch and watching the deer, rabbits and turkeys in the woods. When the trees go, so will their privacy, she lamented.

The Peterses have turned the matter over to a lawyer and say they would rather have MnDOT take all of their property than see their privacy destroyed.
But they fear moving, too.

They say they barely get by on their fixed income and don't believe they will be able to find a comparable place.

"I really can't afford another home like this here," Frank said.

Thorny cases
The biggest arguments over property value arise when MnDOT takes commercial property, industrial land or land at the edge of a rapidly developing area.

In these cases, appraisers must analyze the land's "highest and best use" and compare recent sales and other economic factors. Taking only part of someone's land also causes problems because appraisers must determine the value of the land before and after it is taken.

One such case involved an apartment building in Golden Valley owned by Leslie and Donna Lundstrom of Edina.

In August 1999, MnDOT sent two independent appraisers to evaluate the damage that its work on Hwy. 100 would do to the Copacabana Apartments on Lilac Drive. The agency needed the chunk of land where the Lundstroms had planned to build garage stalls.

Appraiser Melissa Janssen concluded that the road work would create damages worth $55,000. Appraiser Michael Bownik put the amount at $29,600.

MnDOT's Michael Strapp reviewed both appraisals and selected the lower one.

Leslie Lundstrom, 81, asked MnDOT for $305,997. A week later, MnDOT condemned the land, paid $29,600 and took possession in July 2000. The matter went to a commissioners' hearing.

MnDOT had the appraisers update their work before the hearing. Bownik nudged his appraisal to $35,000. Janssen more than doubled hers to $119,000.

MnDOT settled with the Lundstroms for $190,000 on the first day of the hearing. Later, Assistant Attorney General Donald Mueting wrote a memo explaining why the settlement was justified. Before the land was taken, he wrote, a buffer of trees had insulated the apartments from a frontage road 185 feet away. Afterward, the road would be only 65 feet from the building, and all of the trees would be gone.

"I believe that the commissioners, and particularly a jury, could allow substantial damages for that encroachment and loss of privacy," Mueting wrote.
The Lundstroms' son, David, manages the property. "I think we settled too cheap," he said.

Attorney Robert Hajek has handled many such cases for property owners and says MnDOT's methods are unfair.

"The people that get killed on this are the landowners," he said. "Because what happens is, MnDOT gives a low-ball appraisal, the people end up with lawyers because they have to, and the lawyers get paid with the proceeds from the condemnation.

"It's a net-lose game to everybody -- other than the lawyers."