Real Estate Principles, 11th Edition By Charles F. Floyd and Marcus T. Allen

Public Restrictions on Ownership Chapter 4 Public Restrictions on Ownership

Four Basic Powers of Government Over Real Estate Taxation Escheat Eminent domain Police power

Property Tax “Ad valorem” tax Millage rate ($1 tax per each $1,000 of value) Assessment ratio Exemptions The tax bill for a property with a market value of $120,000 in a jurisdiction that assesses a millage rate of 25 mills on 40% of a property’s market value and permits a exemption of $2,500 for this type of property is calculated as follows:

Tax Bill Calculation Market Value $120,000 multiplied by Assessment Ratio × .40 equals Assessed Value $48,000 minus Exemptions (if any) – $2,500 equals Taxable Value $45,500 divided by 1000 ÷ 1000 times Millage Rate × 25 equals Property Tax $1,137.50

Administering the Property Tax Identify all properties and estimate their values Develop a budget and tax rate The budget is determined by the appropriate government officials based on the costs of providing government services to the community (police and fire protection, schools, libraries, street, etc.) Dividing the budget amount by the tax digest (total value of properties in the jurisdiction) yields the tax rate necessary to generate the budget amount. Bill the property owners and collect the taxes Unpaid property taxes create a lien on the property that takes priority over most other liens, even existing mortgages

Power of Eminent Domain Per the 5th and 14th Amendments to the U.S. Constitution Right of the government to take private property for public use upon the payment of just compensation Use must be a valid public use See Legal Highlight “What Constitutes ‘Public Use’?” Property owner must be compensated fairly

Inverse Condemnation Sometimes a property owner may feel that a governmental restriction has effectively “taken” the property from the owner. In such situations, the owner can file a lawsuit for inverse condemnation to force the government to purchase the property under the concept of eminent domain. See Legal Highlight “Inverse Condemnation”

Police Power Power to regulate use of private property to protect public health, safety, morals, and general welfare Land uses are interdependent, meaning that the way one property is used affects other nearby properties, therefore government regulates how properties can be used to protect other property owners Preventing one land owner from using land in a way that interferes with another land owner’s rights

Police Power: Comprehensive General Plan Many jurisdictions enact laws to create a plan for the orderly development of the community These plans typically include: Projected economic development Transportation plan to provide for necessary circulation Public-facilities plan that identifies such needed facilities as schools, parks, civic centers, water, and sewage disposal plants Land-use plan Official map These plans are primarily implemented through zoning laws

Police Power: Zoning Zoning – division of a community’s land into districts to regulate the use of land and buildings and the intensity of various uses Type of use – residential, commercial, industrial, and other categories Intensity of use – developmental density limits Height and bulk limitations Floor-area ratio (See Figure 4.1 Examples of Floor-Area Ratios) Minimum lot size and setback regulations

Some Innovative Zoning Issues Planned unit development Performance zoning Incentive zoning Transferable development rights

More on Zoning See: Close-Up “The Smart Growth Controversy” Legal Highlight “The Strange Case of the Incredible Shrinking Building” Legal Highlight “The Case of the Costly Permit”

Zoning Laws May Be Challenged Legislative relief Administrative relief Variances Special use permits Judicial relief Note that uses that were in place before a new zoning ordinance made them illegal are often allowed to continue (legal non-comforming uses)

Police Power: Building Codes Standards for construction Protect public health and safety Promote energy conservation

Police Power: Subdivision Regulations Preapplication conference Approval of preliminary plat See Figure 4.2 for a preliminary plat Approval of final plat See Figure 4.3 for a final plat Mandatory dedication Impact fees

Takings: Police Power or Eminent Domain As mentioned earlier, property owners can pursue inverse condemnation suits against the government when they feel their properties have been “taken” without compensation. How far is too far before the owner is entitled to compensation? See Legal Highlight “The Takings Issue”

Escheat Government’s right to acquire ownership of land when the landowner dies without a will and without heirs This power prevents real estate from becoming “unowned” should the owner die without a valid will or heirs.