Explanation of Government Powers in Real Estate (Police Power, Eminent Domain, Taxation, and Escheat)

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Explanation of Government Powers in Real Estate (Police Power, Eminent Domain, Taxation, and Escheat)

In real estate, a fee simple absolute estate is the highest level of property ownership, however, there are still government powers that can impact private property ownership. There are four government powers that will always retain some rights over your property.

These four government powers of real estate are: Police Power, Eminent Domain, Taxation, and Escheat. To remember these, we use the acronym P.E.T.E.

Police power is the state's inherent right to control property use to protect the health, safety, welfare, and morals of the community. It sets a standard and specifications as to how a property can be used. Examples that fall under police power are zoning, building codes, and rent control.

Next, we have eminent domain, which is the state’s power to appropriate property for public use and for the greater good of the community. An example of a state use of eminent domain would be the construction of a new highway in an area that requires the land owned by a private citizen. When a state enacts eminent domain, the owners of the land under question are required to be appropriately compensated, defined as the fair market value of the property, which is paid via the process of condemnation.

If a property owner feels that they are not appropriately compensated, then they can file for Inverse Condemnation. This allows them to file a claim against the government to seek further compensation for their property.

The third government power is taxation. Property taxes are charged on real estate with the revenue being used to pay for government services. Property owners that don’t pay their taxes will have a specific lien put on their property. Specific liens can mean that items beyond the property can be seized to pay off the property owner’s debts.

Lastly, we have escheat, which is a power that ensures a property always has an owner. Escheat happens when a property owner passes away without heirs, resulting in the ownership then reverting to the state. Should a rightful heir to the property be located, escheat is revocable, and the property can be returned to the heir.

And that’s it - as you prepare for your exam, remember the acronym P.E.T.E to remember the four government powers in real estate.