You may recall that, starting a few months ago, we began wondering on this blog if rising California home prices are back in “bubble” territory. Well, it looks like we are in good company. Business Week reports that the Fitch Report thinks so too:

“Home prices keep rising—and not just in some markets. For the first time since 2005, each of the country’s 50 most populous cities are seeing higher prices. While that could be a good sign for the economy, the market is showing signs of overheating and the current pace is not sustainable, according to a new report by Fitch Ratings.

“The report regards home prices across the country as overvalued by about 17 percent. Conditions are worrisome in several markets, most of them in coastal California, where homes are more than 20 percent overvalued. San Francisco and San Jose will set new home price records in the next six months, according to Fitch. While Bay Area tech companies are booming, the region’s economy isn’t growing nearly as fast as the ‘unprecedented’ home price gains, making the market nearly 30 percent overvalued. Current conditions in the heart of Silicon Valley are akin to ‘the environment in 2003,’ the report notes ominously, ‘three years into the formation of the previous home price bubble.’ “

Which goes to show that basic economics works. For several years now, your friendly Uncle Ben has been holding interest rates down, down, down, which means that monthly payments on home mortgages are also down, down, down, which means that total home payments homes began to look cheaper because (a) they were cheaper indeed after the bubble popped, and (b) people make decisions to buy homes on the basis of their monthly payments. So they have been snapping homes up at 3, now 4%. Surprise, surprise!

But wait until interest rates go up as they inevitably will, and so do monthly mortgage payments. Oh, boy!

This is another iteration of the story about the farmer who tried to stay out of a vicious bear’s clutches. In case you haven’t read it before, click here . So you shouldn’t be surprised when we take a dim view when the “bear” takes to a public forum to complain about being mistreated by the farmer. And so we offer a word of disagreement with our fellow eminent domain blogger, Brad Kuhn of www.Californiaeminentdomainreport.com

Mr. Kuhn complains — oy, how he complains — about the cost of acquisition of small parcels of land by eminent domain, where the cost of acquisition exceeds the value of the subject property.

We won’t argue with him about the economics of it, except to note that rational property owners simply cannot afford to spend more on litigation than their land is worth. To use an old saying, that would be a case where the game isn’t worth the candle.  Why? Because when the cost of litigation is excessive, it is just as excessive for one side as for the other, which is to say just as high for the property owner as for the condemnor — isn’t it? The difference between the two is that for its money the condemnor acquires land, whereas the property owner who is undercompensated or at times uncompensated, gets nothing (as in Mr. Kuhn’s example where the cost of litigation exceeds the value of the property). Moreover, the condemnor is usually the government which means that it is usually able to spread the cost of land acquisition on the population which benefits from the public project, whereas the owner cannot do so and is forced to bear a disproportionate cost burden all alone — something that the U.S. Supreme Court rightly deplored in the Armstrong case.

And so, this is a problem that strikes owners of small parcels of land much harder than condemnors. Take a look at a case like the California Supreme Court’s County of Los Angeles v. Ortiz, where owners of modest homes in an unfashionable part of town that were taken by the county, were left with little or no compensation for the taking of their homes because the comparatively few dollars they had in their home equities were consumed by the cost of the services of appraisers and lawyers, leaving them without homes and without significant compensation. These folks were put to a Hobson’s choice: either accept the county’s inadequate offer (in which case the award would go largely to the lender to pay off the mortgage), or fight for full market value (in which case their small equity would be largely consumed by the costs of litigation). Either way they would wind up with no home and pretty much with no money. Some “just compensation!”

The fact is that in the overwhelming majority of eminent domain cases, the property owners accept condemnor’s offers which at times are below the amount of the condemnors’ own appraisals. Let’s just say that in every study of its kind — and we are aware of some half-dozen of them, owners who reject condemnors’ prelitigation offersoffers and litigate their just compensation, make out better, irrespective of whether they try their valuation cases before judges or juries.

Finally, how does it happen that owners get those court awards of compensation that are consistently higher than condemnors’ offers? Could it be that condemnors tend to shortchange owners when they can, so the owners have an incentive to fight for awards higher that condemnors’ offers which historically have been too low. See 40 Loyola L.A. L. Rev. at pp. 1106-1111. Bottom line: The economic burdens of litigation must fall somewhere, and it seems fair to us that they fall not on the victims of the process, but rather on the parties that benefit from it and the people at large who get to enjoy the benefits generated by public projects.

But in a way we agree with Mr. Kuhn: it would be better for everybody if litigation were not so expensive, and genuinely voluntary settlements occurred more often. But that’s another story. Our conclusion is that given the frequency of times that eminent domain awards exceed condemnors’ offers and opinions (see our ongoing “Lowball Watch” department, and see 40 Loyola L.A. L. Rev. at 1146-1148), it is a justified conclusion that those studies referred to above, may be trying to tell us something. After all, property owners and their lawyers are no magicians and they are not capable of reducing jurors’ and judges minds to putty with their rhetoric. Most of the time it takes persuasive evidence to win, particularly in eminent domain where admissible valuation evidence is circumscribed by a variety of limiting rules, and where judges act as “gatekeepers” to a far greater extent than in other kinds of litigation.

“Never, never, never give up,” said Winston Churchill, and here is  a case in point to support him.

We don’t know if this is a record, but it appears that the litigation against the state, including the eminent domain taking of land under which the notorious Centralia, Pennsylvania, underground coal fire has been burning since 1962, and has been the subject of an eminent domain action, has been settled.

The reason for the taking was to evacuate and  protect the inhabitants of the surface of land above the underground fire from noxious gases rising from it. Some 1000 people were relocated and 500 structures demolished. But several homeowners refused to move and the State of Pennsylvania filed a condemnation action against them. For some reason, the state allowed the holdouts to remain in possession for decades. After a long standoff, the state demanded possession and the holdout owners responded with a federal court lawsuit of their own, evidently claiming that the condemnation was pretextual — a way of trying to snooker them out of their valuable mineral rights, which the state denied.

Long story short (and we do mean long) the case has just settled for $218,000 for the holdouts’ homes and another $131,500 for “additional claims raised in the [federal] lawsuit” not otherwise identified in the AP story. The settlement also leaves the homeowners with a life estate in their homes — they will be able to continue occupying their homes for the rest of their lives. Altogether, not a bad deal, and the homeowners justifiably claim victory.

The fire, by the way, is still burning but has evidently gone deeper underground so the owners are willing to take their chances on remaining unaffected by the fumes. We wish them luck. For the full story, click here.