Closing costs are fees–including escrow and title fees–associated with the purchase of real property that are paid at the close of escrow. In typical arms-length transactions, both sellers and buyers are responsible for paying some amount of the closing costs. As discussed below, special treatment should be given to closing costs in an eminent domain situation.
During the course of an ordinary purchase of property by a public entity (i.e., an acquisition where the agency is not planning to initiate an eminent domain action if the property cannot be acquired voluntarily), there is no duty to purchase the property at its appraised value. However, special rules apply if an agency intends for its offer to comply with Government Code section 7267.2, which is a prerequisite to condemnation.
Section 7267.2 mandates that, prior to adopting a resolution of necessity and initiating an eminent domain action, an agency must make an offer not less than the agency’s approved fair market value appraisal of the property to be acquired. Often times, this offer is accompanied by a draft purchase and sale agreement. To comply with Section 7267.2, the proposed purchase and sale agreement should specify that the agency will bear all of the normal closing costs (except for those incurred by seller to clear title exceptions). Otherwise, the owner could argue the agency’s offer is less than the full amount of the property’s appraised value, since a portion of the closing costs are being deducted against the full appraised value of the property. An offer out of compliance with the mandates of Section 7267.2 could result in the property owner’s successful challenge to the agency’s right to take, holding up the time frame for the property’s acquisition and adding unnecessary costs to the overall project. To avoid this, simply have the agency offer to pay all of the closing costs.
For a discussion of an agency’s obligations regarding a garden-variety negotiation of a buy/sell agreement, see Melamed v. City of Long Beach (1993) 15 Cal.App.4th 70, 78-79.
Also, for eminent domain attorneys, a new appellate case entitled Weiss v. People ex rel. Dept. of Transp. came out of the Fourth Appellate District on March 1, 2018, which ruled that the special motion under the eminent domain law which allows for the early determination of legal issues (Code of Civil Procedure section 1260.040) may not be used in inverse condemnation actions. You may click here for a link to the decision.