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Overview
Eminent Domain is when the government, or in some instances a private entity, takes private property for public purposes. For centuries all levels of government in the United States have enjoyed the right of eminent domain as an incident to their sovereignty. Public policy requires that the various levels of government be allowed to take private property for public purposes. However, the United States Constitution and the North Carolina Constitution provide that “just compensation” be paid by the government to the owner.
In North Carolina, the legislature has delegated the power of eminent domain to certain private entities. For example, electric utility companies and railroads may exercise the power of eminent domain. Chapter 136 of the General Statues governs condemnation cases instituted by the Department of Transportation for highway purposes. Chapter 40A governs eminent domain proceedings instituted by private condemnors and all other public condemnors, such as municipalities and counties.
Early Negotiations
Most often the landowner’s first communication with the condemnor in an eminent domain situation is a letter of inquiry from the right of way agent or procurement agent. Since most eminent domain cases involve a “partial taking,” in which less than all of a property owner’s land is being acquired, there is a need for some initial surveying in order to determine the exact property that will be the subject of the condemnation. In the event that the landowner does not wish to grant survey access to the condemnor, the condemning authority can seek a court order authorizing entry for the limited purpose of conducting a survey. Once the necessary surveying has been completed, the condemnor generally obtains a fair market value appraisal from a state certified real estate appraiser. Typically, this appraisal is the basis upon which the condemning authority makes its initial offer to purchase. Since litigation can be expensive for all parties, most condemning authorities will seek a personal conference with the landowner in an attempt to reach an amicable settlement. The overwhelming majority of eminent domain cases are resolved during these private negotiations.
When Negotiations Have Failed, Suit Will Be Filed
In the event that the landowner and the condemning authority are unable to reach a settlement, the condemning authority will file a civil action in Superior Court. The civil action will set forth the purposes for which the subject property is being acquired, the nature and extent of the property interest being acquired by the condemnor, and the condemnor’s estimate of fair market value. Under both Chapter 136 and Chapter 40A of the General Statutes, the condemnor acquires title to the subject property immediately upon the commencement of the civil action, the filing of a Notice of Taking in the office of the Register of Deeds, and the payment of the condemnor’s estimate of just compensation into the office of the Clerk of Superior Court. The condemnor is required to serve a copy of the pleading along with a civil summons on the landowner and all other parties having an interest in the subject real estate. The civil summons will set forth the deadline within which the landowner must respond if the owner wishes to challenge the condemnor’s estimate of fair market value. The summons must be reviewed carefully as the time deadlines for the filing of a responsive pleading pursuant to Chapter 136 (one year from the date of service) and Chapter 40A (120 days from the date of service) are not identical. If a responsive pleading is not filed by the deadline, it is deemed that the landowner agreed with the condemnor’s estimate of fair market value and the landowner is barred from seeking additional compensation for the property being taken.
Estimate of Just Compensation
Once the condemnation action has been commenced by the filing of the complaint and notice of taking, the landowner will have an opportunity to withdraw the initial deposit (estimated to be “just compensation”) made by the condemnor with the Clerk of Superior Court. The general statutes allow the landowner to receive this deposit without prejudice to the landowner’s right to contest the condemnor’s estimate of just compensation. Since the portion of any future settlement or jury verdict will not include interest on the amount of money initially deposited with the Clerk of Superior Court, the initial deposit should be withdrawn as soon as possible.
In condemnation cases, the only issue submitted to the jury is the amount of just compensation to which the landowner is entitled. The term “just compensation” generally refers to the fair market value of the land being acquired plus an amount of money for the damage, if any, to the owner’s remaining parcel of land. Despite the opportunity in North Carolina for the landowner to testify on the issue of value, the better practice is to employ one or more state certified real estate appraisers to render opinions as to just compensation. As the real estate appraiser will often testify at trial, it is important to select an appraiser who is both knowledgeable and articulate. State certified real estate appraisers usually qualify as expert witnesses, which gives their testimony more credibility.
The first step in the appraisal process is the determination of the “highest and best use” of the subject property. Highest and best use is that use which is the most profitable and likely use to which the property can be put. It may also be defined as that available use which produces the highest present land value. The highest and best use selected by the appraiser must be: 1) physically possible, 2) legally permissible, 3) financially feasible, and 4) maximally productive. The highest and best use is quite often not the current use as of the date of taking. For example, farmland and timber land in active cultivation may be best utilized as either a residential community or a commercial project. The determination of highest and best use by the appraiser is critical to a determination of fair market value.
Fair Market Value
Once the real estate appraiser has determined the highest and best use, a determination can be made as to fair market value. Certified real estate appraisers utilize three basic appraisal methods and exercise their own independent judgment when determining fair market value. Consequently, the landowner has no control over the appraisal process. Therefore, for several strategic reasons, it is recommended that the landowner’s attorney employ the appraiser.
The Discovery Process
In almost every civil action in Superior Court, the parties participate in a process known as “discovery.” Pursuant to the Rules of Civil Procedure, the condemnor and the landowner are allowed to ask each other certain questions about the property and its fair market value. Each party must identify his intended trial witnesses. Often, the depositions of the landowner and the real estate appraisers are taken. These depositions educate the parties about the testimony of the adverse witnesses in order to prepare for trial.
This article will be continued in our next edition of Legal Insights.
If you have any questions about Eminent Domain, please contact Mr. Thurston Debnam at (919) 250-2104 or by email at
tdebnam@smithdebnamlaw.com .
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An Initial Look at Bankruptcy Reform Legislation Recently, there has been a great deal of discussion lately about bankruptcy abuses and a new law designed to curb them. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the
"Act") was signed into law by the President on April 20, 2005. The Act, which takes effect on October 17, 2005, contains several changes to the Bankruptcy Code that will significantly help lenders and other creditors.
The general impetus of the Act, long supported by banks and credit card companies, is to make the discharge of debts more difficult and to require greater repayment to creditors in Chapter 13 cases. This is accomplished by requiring a
"means test" to overcome a presumption of abuse by debtors. The means test requires the debtor to base expenses on amounts specified in published National and Local Standards and those provided by the Internal Revenue Service for the debtor’s local. If income exceeds expenses in excess of specific requirements, there is a presumption in favor of dismissal of the bankruptcy case. This law is much tougher on debtors than the current law, where dismissal occurs only where there is substantial abuse.
Those debtors with income above the state's median level who can pay at least $6,000.00 over five years, or $100.00 a month, will not likely be able to sustain a Chapter 7 case. The presumption of abuse also extends to debtors whose income less expenses exceeds 25 percent of the
debtor's nonpriority unsecured claims. This will likely force more debtors into filing Chapter 13 cases, which will require greater repayment of debt through reorganization plans.
The Act also contains revisions regarding dischargeability as well as treatment of secured creditors in a Chapter 13 case. Cash advances of $750.00 or more obtained on or within 70 days of filing would be presumed as nondischargeable as well as luxury goods costing $500.00 or more incurred on or within 90 days prior to filing. In Chapter 13 cases, currently debtors are permitted to value secured claims such as automobile loans as secured only to the extent of the value of the collateral. Under the Act, this
"cram down" of secured debts would be prevented unless the debt is more than
2 1/2 years old for automobiles or one year old for other property. For those debts which are not that old, the obligation will remain valued at the secured debt amount, ostensibly leading to higher repayment.
Other significant changes in the Act include requirements that debtors must receive credit counseling before filing bankruptcy and that they submit tax returns to the trustee. The Act also provides for the permanent re-enactment of Chapter 12, which allows for the reorganization of family farmers, and contains a provision that designates the appointment of an additional Bankruptcy Judge in the Eastern District of North Carolina.
The Act will have a significant effect on both creditors and debtors. With the new law taking effect later this year, attorneys and their clients should begin thinking about its implications today.
If you have any questions about the new bankruptcy law, please contact Mr. Adam Gottsegen at (919) 250-2111 or by email at
agottsegen@smithdebnamlaw.com. Back
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Redemption Funding And The Credit Union*
*Smith Debnam is proud to represent numerous credit unions.
Although this article specifically addresses them, we hope you find it interesting and useful.
For nearly all of the twenty-six years since our current Bankruptcy Code was passed, Chapter 7 debtors rarely have resorted to redeeming their property pledged as collateral to lenders, including credit unions. “Redemption” in bankruptcy means paying just the car’s value, not the higher balance owed on it. Within the last few years, that obscure right has become the new darling of Chapter 7 bankruptcy debtors nationwide. The rise of a new species of secured lender, the “redemption funder,” coupled with APR’s at around 23%, has made it all possible.
As a result, your credit union has begun receiving “Motions for Redemption” from lawyers representing members who have filed Chapter 7 bankruptcy. Understanding and responding to these motions is important. Ignoring them will only cost money. Attending to them appropriately can mean recovering money equal to the net proceeds of a repossession and resale, but without the attendant risks, costs, and delays.
Why Bankrupt Members Resort to Redemption
Routinely, members who file bankruptcy owe their credit union the “Big Three”– a car loan, some kind of signature loan, and a credit card balance. Typically, all three loans are cross-collateralized by the security interest in the debtor’s car. That means if he is in “payment default” of any of those three debts to the credit union, a bankrupted member risks losing the car to repossession. Before redemption funding became available, credit unions could require members in Ch. 7 bankruptcy to reaffirm all their debts, to keep from losing their beloved “pride rides.” Refusal meant losing the ride to repossession.
As a result, bankrupted members reluctantly reaffirmed debts with balances much greater than their cars’ values. Aside from losing the car, the only other alternative was to hand the credit union a single payment equal to the car’s full value or the loan balance, whichever is less, all at once. This payment is redemption under 11 USC §722 . If a member can redeem, bankruptcy law gives him clear title to his car, entirely free of your lien. Few members in bankruptcy have the cash available to make this type of payment. Enter the redemption funder, with enticing promises of lower monthly payments, fresh credit, and a way to dump all those pesky credit union debts.
How Redemption Funding Works
In a clever bit of marketing, redemption funders have blanketed offices of bankruptcy attorneys nationwide with brochures and pamphlets advertising redemption loans. The APR, typically 23%, is not prominently displayed. Across the country, debtors are finding the brochures in their lawyers’ waiting rooms. Despite stratospheric interest rates, redemption loans often mean lower monthly payments, since the redemption amount loaned on an “upside down” car is often far less than what was owed on it. The new loan is just for the car’s value, not for the full payoff of your credit union car loan.
The total amount paid over the new redemption loan’s life often approaches the balance originally owed on the credit union car loan, but few borrowers care. What matters more to a borrower than a lower monthly payment amount? Funders’ delinquency rates range between 4% and 7%, but the high APR compensates nicely.
Bankruptcy redemption is an obscure law, even to many bankruptcy lawyers. At least one funder’s brochures have provided lawyers with sample pleadings for obtaining permission from the Judge to redeem.
Redemption funders will lend not only the money to redeem the car, but also the fee for the member’s lawyer to file the motion. At least one such lender ties the amount loaned for the lawyer’s fee to the amount of the redemption: the lower the approved redemption amount, the higher the fee! That helps explain why Motions for Redemption often propose the lowest possible “book value” as the amount the Court should approve for payment. It also explains why bankruptcy lawyers embrace Ch. 7 redemptions as a guaranteed revenue enhancer. Their fees range from $200 to $600 to whatever the market will bear.
A debtor does not usually have his “pride ride” specifically appraised to establish its value for bankruptcy redemption. Instead, the redemption funder will furnish a print-out of whichever national used auto price guide affords the lowest “presumptive” valuation. The Blue Book, Black Book, Kelley, or NADA valuation, whichever establishes the lowest wholesale value usually appears in the format of an actual appraisal, is attached to the Motion as “Exhibit A.” Read the fine print. It admits the lender never actually saw the car. The list of value-adding “options” is whatever the debtor said it is, as is the mileage. What better way to conceal those after-market sub-woofers and 20" spinners?
The member’s lawyer files the model Motion in Bankruptcy Court which asserts the presumptive wholesale value of the car. He mails you a copy, and then he waits. He hopes that while you are deciding how to respond, you will do nothing. After the time expires for you to respond (usually about 18 days from mailing), the Bankruptcy Judge grants the unopposed Motion and signs an Order. That Order allows the member, or his redemption funder, to mail you a check for the modest valuation amount he selected in his Motion. You must accept that amount, release your lien, deliver any title you hold to the redemption funder, and like it. The balance of the debt disappears in the Chapter 7 bankruptcy discharge. If you were asleep at the switch, case closed!
This article will be continued in our next edition of Legal Insights. If you have any questions about this article, please contact Frank Drake at (919) 250-2109 or by email at
fdrake@smithdebnamlaw.com.
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Smith Debnam Hosts Foreign Delegations
Attorney Aaron N. Bailey, at the request of the International Visitors Council, has provided a number of seminars on U.S. domestic legal policy and procedure to delegations from Eastern Europe and Asia. His latest guests were six judges from the high courts in Afghanistan. Two translators from the U.S. Department of the Secretary of State were also in attendance.
On March 1, 2005, Mr. Bailey welcomed the distinguished Afghani judges with a tour of the firm, a catered halal lunch (similar to a kosher preparation method), and a seminar. The group addressed civil and criminal law issues and discussed cultural differences affecting the rule of law in Afghanistan. Said Mr. Bailey, “It is such a great honor for our firm to be able to support our foreign colleagues as they seek new ideas. The courage and vision required of these judges to entertain and implement new legal ideas during tumultuous times is incredible and humbling.”
This was Mr. Bailey’s fourth opportunity to address foreign dignitaries regarding legal matters. His first seminar hosted a group of judges from the former Soviet Union and addressed civil law, enforcement of judgments, and legal remedies. In November of 2003, he welcomed a delegation of Supreme Court Judges from Russia and discussed legal reforms and legal system comparisons. In June of 2004, Mr. Bailey conducted a similar seminar for Ukrainian Lawyers and Officials.
Mr. Aaron N. Bailey practices commercial, insurance and creditor’s rights litigation and takes great interest in enforcement of foreign judgments and international law. You may contact him at
abailey@smithdebnamlaw.com or by phone at (919) 250-2134.
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