By A.J. Hazarabedian

Some property owners in Petaluma, CA are blaming Sonoma Marin Area Rail Transit (“SMART”) for their property going into foreclosure.

Since 2005, as reported in the Press-Democrat article, “SMART, land owners at odds over Petaluma site,” SMART has discussed using the 6.5 acre site owned by Patti and Clinton Gow and Robin and Larry Drew as a potential station location.

To this day, however, a formal decision has not been made as to whether or not the site will indeed be acquired.  It is this uncertainty, the article claims, that has put the Gow’s and Drew’s property in jeopardy.

According to the property owners, not knowing if the property will one day be acquired has caused them to lose “more than half of their commercial tenants” as well as “development deals for the property.”  The owners and their lawyer contend that this has caused a loss of income which has resulted in the property going into foreclosure.

The property owners’ attorney is quoted in the article, stating “for [SMART] to not work with the owners and then try to pick [the property] up for a fraction of its fair value isn’t right.”  He believes the agency is acting “unreasonably” and “can be liable for damages.”

On the other side of the issue, Sonoma County Supervisor Valerie Brown, who is also chair of the SMART board, disagrees with the property owners’ claims.  She believes the agency has “acted reasonably” and “didn’t cause the property owners’ financial troubles.”  She goes further to say that the 6.5 acre site “wasn’t even in [their] picture,” and that although the plan was “put in place a long time ago…it wasn’t something [they] were actively thinking about until this foreclosure came up.”

Per the article, the property owners’ attorney is currently “exploring legal options” for his clients.

Our Take: Our take on this is that the issues being faced by the Gows and Drews are relatively common, but serious.  It is unfortunately not unusual for public agencies to announce tentative project plans, deny development applications by the owner in light of the agency’s tentative plans, and then not take definitive action towards the proposed project for years.  In the meantime, what are the owners to do?  Business tenants become aware of the plans, and acting as reasonable business people wanting security, they do not renew leases and they move.  The owners then face difficulty in re-leasing the property.  The property declines as a result, and then years later attempt to purchase the property at fire sale prices.

Fortunately, however, owners do have some possible remedies.  If the agency does move forward with eminent domain, the owner is entitled to have his property valued free of project influence – i.e., as though the project was never announced.  If the agency does not move forward with eminent domain, the owner might attempt an inverse condemnation action based on unreasonable precondemnation conduct.  Agencies are permitted to engage in reasonable planning activities for a reasonable period of time.  They are not, however, permitted to engage in unreasonable conduct or unreasonably delay following an announcement of intention to condemn.