Posting for a friend of mine who would like to remain nameless.  Thank you in advance for anyone that can shed some light for him.  He is a biggerpockets follower so he will see your posts.  

....."Purchased House from County in Tax Delinquent Sealed Auction in Wisconsin, “As Is”. Prior to purchase we obtained a title and judgement search, all results showed no liens, judgements, or anything else. Once we entered we saw the home needed more work and money than we could do at that time so we focused on other projects. A year later we returned to the house for construction bids and for potential sale when we received a “Raze Order” requiring us to demolish within 30 days or the City will do it at our expense. Our realtor called/emailed the city and the city admitted that the house should have been demolished years ago but they never got around to it. City said they tried to contact the previous owner in 2017 (before we purchased) but they had “issues” notifying the bank and because of that they did not record any raze order. In the emails they use the word condemned. There has never been any posting on the house that the property was condemned (nor is there a posting now about the raze order). They also told me on the phone the property was condemned for health reasons.

I believe we get 30 days from notice for to file restraining order/injunction and I believe they have not followed many procedures of raze or condemnation, but I’m not sure of the relevance, it may only delay the inevitable. State law says that if it costs more than 50% to repair the house then it is subject to raze order. I was on the verge of a sale when we got the raze order as I was just looking to make the money back I spent on it. I can’t spend another 10-15k on an attorney only to wind up in the same place in a year. The fight is not whether it costs more than 50% to repair, that is fight I believe we will lose. The thing I’m having trouble with is the government owning and having access to the house, making a determination that the house needs to be demolished, yet not file any paper or put up any postings or anything until after it is sold at government auction. They have sinced filed the raze order, further destroying my chances of a sale even if I were to get the raze order removed. Again, just looking to make my money back and not lose my shirt. Thank you for any assistance."

geez that’s a tough spot to be in . I believe I’d look at filing suit against the city for fraudulence and withholding that information which should have been publicly recorded or understand on the title . This could certainly get ugly and expensive depending how far it’s taken .

did you buy the title insurance that the key question if you did and did not skimp out on that one you would have a claim

did you get a special assessment letter and check with building inspections for open orders from the city prior to closing?  and what @Jay Hinrichs said about title insurance. I have never known a municipality to push through a raise order if you have a plan for renovation, but the sale may complicate things.

Many municipalities have the 50% raise order. I have not personally seen it enforced. Nor did I know it was a state law. Municipalities tend to do what they want in many instances, I've had them mail previous owner in regards to violations and stick me with $600 with out any notice. I no longer invest in those cities that do things of that nature. 

Sorry to hear, you are in a tough spot. Even tough it seems the city may be at fault here and have not followed protocoll, you are probably facing an uphill battle. Assuming that the house does not have the best curb appeal, I don't think the goal of the city is to necessarily raze the house, but to find a solution to the eyesore problem. I am sure the neighbors are not happy to have a delapitated property right next to them and quite frankly this is where communities have to step up for everyone's benefit. The fact that you did let it sit for a year without doing anything is probably not beeing looked at favorably by the neighbors either and I'd say understandbly. I guess my focus would be on renovations; if it's gone too far, then raze it and sell the lot. Because selling it to someone else is just kicking the can down the road. Maybe the city would assist in some way? I do believe that as investors we have a role to play in society (that's why the IRS gives us so many incentives to do what we do) and we have a social responsibility as landlords, flippers, developers etc beyond making money and that's sometimes just not fun.

Thank you to everyone who has responded.  I am sure my friend is reviewing all the posts so thank you. I feel terribly for the guy because it has put a sour taste in his mouth about investing in real estate.

City has to pay him for fair market value for condemnation doesn't it? Eminent domain and all. The key would be having him talk to an attorney probably in Milwaukee who is familiar with eminent domain.

Originally posted by @Ryan Seib :

City has to pay him for fair market value for condemnation doesn't it? Eminent domain and all. The key would be having him talk to an attorney probably in Milwaukee who is familiar with eminent domain.

 No, this is not an eminent domain issue. The city isnt taking the property from the owner, they are ordering it condemned.

I'd just go in with the buyer and tell the city you are in the process of fixing it up, which is what the city wants to hear. That should buy you time to it get fixed up. I don't think they really want to go through the process of using city funds to tear it down. No need for an attorney for a fight you won't win. They just want to remedy a problem house.

Response from my friend ...

Thank you for the response thus far, to answer some of the questions presented:

1) We did not buy title insurance. I do not recall if we were able to because of the type of deed we acquired or if was newbie ignorance, or both. I had a different title company do a search to determine if the first company missed something, but they both had no record of anything. For whatever it's worth, the person at the title company told me that because of the nature and timing of what occurred that even title insurance would not have protected us. I don't know if that's true, but it what they told me.

2) The only notices from the city were for snow removal and cut grass which we remedied. There were no other notices whatsoever. We did not check for open orders from the city prior to closing, but we called the city when we took over and they made it just seem like it was a routine house in need of repair. They even made us pay for turning on the water despite no one living at the property.

3) The house sat vacant apparently for years and we did some preventative maintenance and also addressed the grass, snow, and other issues affecting the neighborhood. There was activity at the property and we were actively selling it to another investor. I understand the social responsibility aspect, we have already turned a vacant property into a home and a new tax source for the city in the past couple months, but this came out of nowhere. No posting on the home after condemning it? Allowing it to go to sale without any notification? It's been in bad shape for years, but suddenly it needs to be removed within 30 days? It's one thing if it was in bad shape but repairable and we let it go to the point of condemnation, but that's not the case. We had interested buyers willing to take on the project, which would mean more money for the city rather than a vacant lot that won't be built on for years if this goes through.

I've seen instances where the city works with people like us and acts reasonable. Gives deadlines, benchmarks with timelines, modifications, ect. There has been nothing here (so far) and there was no way for any buyer to see the true condition of the home without breaking in and trespassing prior to the sealed auction (which I know many investors do). Not sure how our new found family business can sustain such losses.

@Vincent John Tucci - I can see how it happens. I feel bad for your friend. Buying at auction, site unseen is the riskiest of all acquisition methods. If you buy 10 auction properties a year you can assume that one or two are turds, but they average out with the volume. And if you have the people and rehab skill set you can deal with the bad ones too. But it seems like a good idea; after all that's what they do on HGTV, right? The price was probably tempting...

I hate to say this (because that is NOT how good work is done), but most properties can be fixed up surprisingly well with "paint and duct tape". I would do what's necessary and then get it sold.

Originally posted by @Russell Brazil :

Originally posted by @Ryan Seib:

City has to pay him for fair market value for condemnation doesn't it? Eminent domain and all. The key would be having him talk to an attorney probably in Milwaukee who is familiar with eminent domain.

 No, this is not an eminent domain issue. The city isnt taking the property from the owner, they are ordering it condemned.

Hi Mr. Brazil thanks for the response but I am afraid you are misinformed. Condemnation is the name used for the exercise of eminent domain power. So it is an eminent domain issue. What would you think happens to condemned property if the "city isnt taking the property..."? I think rather obviously when you think about it, the end result of a condemnation is that the city takes possession of the property when its conditions are not met.

Rather, my point was that (since this is a use of eminent domain power), what is the "fair market value" the city is going to come up with to pay him to take his property for public use (ie remedy "blight" or whatever). So, while I thought he ought to talk to an eminent domain attorney to check the specifics of procedure he alleges were not followed, etc., possibly even more importantly I am guessing he would want to get out ahead of the valuation side, and at least try to get the city to pay him FMV. I have known investors get quite a bit of value out of municipalities that want to take property for whatever reason. Often the municipality has an ulterior motive such as wishing to sell the property to a developer or build a telephone line on the lot or something. So, if the investor happens to have some leverage and savvy they can demand a much higher price!

Here is a link he may find helpful: http://www.ownerscounsel.com/h...

Originally posted by @Ryan Seib :

Originally posted by @Russell Brazil:

Originally posted by @Ryan Seib:

City has to pay him for fair market value for condemnation doesn't it? Eminent domain and all. The key would be having him talk to an attorney probably in Milwaukee who is familiar with eminent domain.

 No, this is not an eminent domain issue. The city isnt taking the property from the owner, they are ordering it condemned.

Hi Mr. Brazil thanks for the response but I am afraid you are misinformed. Condemnation is the name used for the exercise of eminent domain power. So it is an eminent domain issue. What would you think happens to condemned property if the "city isnt taking the property..."? I think rather obviously when you think about it, the end result of a condemnation is that the city takes possession of the property when its conditions are not met.

Rather, my point was that (since this is a use of eminent domain power), what is the "fair market value" the city is going to come up with to pay him to take his property for public use (ie remedy "blight" or whatever). So, while I thought he ought to talk to an eminent domain attorney to check the specifics of procedure he alleges were not followed, etc., possibly even more importantly I am guessing he would want to get out ahead of the valuation side, and at least try to get the city to pay him FMV. I have known investors get quite a bit of value out of municipalities that want to take property for whatever reason. Often the municipality has an ulterior motive such as wishing to sell the property to a developer or build a telephone line on the lot or something. So, if the investor happens to have some leverage and savvy they can demand a much higher price!

I don't agree with your argument …   having had many a house razed by the city and then get a bill for it.. just had one done in Indy. but that's because we did not get to it in time to rehab  we were going to demo it anyway.  

I have another one where the title co missed the order to raze and we have filed a title claim. And expect to get paid out.. had the title commitment had the order as an exception we would not have purchased.. they missed it. 

@Ryan Seib I have to agree with @Russell Brazil and @Jay Hinrichs ...I see no correlation between an order of condemnation and eminent domain....the city is Not seeking to take title. The condemnation determination is simply a required procedural step to be able to proceed with demolition, at the owner’s expense, where a property has been neglected, violating health and safety codes. 

The city is Not seeking to acquire for public use. 

@Vincent John Tucci The condemnation order doesn’t really change anything.....the same amount of work has to be done to restore the property. You simply need to contact the city....they halt demolition orders all the time when the owner shows them a plan and intent to restore the property. 

Thank you everyone who has responded.  I have forwarded all links and messages.  Again, thank you.

@Russell Brazil , @Jay Hinrichs , and @Wayne Brooks

I appreciate the push back on this from you guys! It really is helpful to do so in order to further everyone's knowledge I think.

So whether the city wants to take title or not as a result of the raze order I do not think was clear. Either way, the procedure is likely called "condemnation". If the city was taking title it would also probably "condemn" the property in order to do so.

Now the legal theory which underlays what we call in common parlance "condemnation" is called "eminent domain". If there were no eminent domain power, the city could not condemn any private property. Eminent domain just means, the right of the government to take private property. Whether the government actually takes title to the property is not relevant, since eminent domain includes "regulatory takings" and "partial takings" (ie diminution in value of private property as a result of government actions). This is a very fertile topic to which many legal scholars have devoted their entire lives. By the way I am not saying anyone should be devoting their lives to such things, but merely that this is the case.

If I am wrong that is news to me and apparently to the Wisconsin Supreme court as well. In a random opinion I just pulled up to find some language for you all, is this majority opinion of the court authored by Justice Patience Roggensack in 2007:

In Arrowhead Farms, Inc. v. Dodge County, 21 Wis.2d 647, 124 N.W.2d 631 (1963), we ... grounded the requirement of good faith negotiation in a primary purpose of statutory condemnation: to provide just compensation to the property owner. Id. at 651, 124 N.W.2d 631.

¶ 7 In Herro v. Natural Resources Board, 53 Wis.2d 157, 192 N.W.2d 104 (1971), we ... explained the nexus between good faith negotiation prior to issuing a jurisdictional offer and the ability to exercise the power of eminent domain:

[U]nless there is a bona fide attempt on the part of the condemnor to induce the owner to sell the land at a reasonable figure, the condition under which the power is granted is not fulfilled, and in such case any attempted exercise of eminent domain is unauthorized and consequently void and of no effect. . . .

Id. quoting 6 Nichols, Eminent Domain § 24.62(1) at 85 (3d ed.).

¶ 8 In examining the negotiation efforts made in Herro, we reiterated that ch. 32 provides the exclusive procedure in condemnation actions, including the requirement to negotiate before making a jurisdictional offer to purchase. Herro, 53 Wis.2d at 171, 192 N.W.2d 104. We explained that we strictly construe the portions of ch. 32 that apply to condemnation by requiring that the condemnor complete all of the statutory steps because condemnation is in derogation of the common law. Id. (citing City of Madison v. Tiedeman, 1 Wis.2d 136, 83 N.W.2d 694 (1957) and Schroedel Corp. v. State Highway Comm'n, 34 Wis.2d 32, 148 N.W.2d 691 (1967)). Warehouse II, LLC v. State Dept. of Transp., 715 N.W.2d 213, 2006 WI 62 (Wis., 2006).

Warehouse II, LLC v. State Dept. of Transp., 715 N.W.2d 213, 2006 WI 62 (Wis., 2006)

What this means essentially as applied to this matter, is that the city's use of the power of eminent domain (through a process it calls condemnation), to attempt to partially take this BPer's private property (by reducing its value through a raze order, whether followed or not by title transfer to the city), for public use (in this case the public use at issue is that the city apparently thinks the public health/property values would be improved by razing the property) is subject to court and procedural review and to "just compensation" to the owner. I do not know all the ins and outs of the last part of that statement, including what court or procedural review process he could follow to fight the condemnation, which is why I recommended he talk to an eminent domain attorney. But it is clear that the city is using its powers of eminent domain to condemn private property here. That means he has rights to defend himself as stated by the fifth amendment to the US Constitution, Article I Section 13 of the Wisconsin Constitution, and generations of caselaw to back up partial takings/regulatory takings adjudication.

Feel free to push back more if I am wrong perhaps I am! I would be very interested to learn what other basis government has for taking or reducing value of private property. Eminent domain is the justification for innumerable government regulations and takings against private property owners so this is actually a very important topic.

Originally posted by @Ryan Seib :

@Russell Brazil , @Jay Hinrichs, and @Wayne Brooks

I appreciate the push back on this from you guys! It really is helpful to do so in order to further everyone's knowledge I think.

So whether the city wants to take title or not as a result of the raze order I do not think was clear. Either way, the procedure is likely called "condemnation". If the city was taking title it would also probably "condemn" the property in order to do so.

Now the legal theory which underlays what we call in common parlance "condemnation" is called "eminent domain". If there were no eminent domain power, the city could not condemn any private property. Eminent domain just means, the right of the government to take private property. Whether the government actually takes title to the property is not relevant, since eminent domain includes "regulatory takings" and "partial takings" (ie diminution in value of private property as a result of government actions). This is a very fertile topic to which many legal scholars have devoted their entire lives. By the way I am not saying anyone should be devoting their lives to such things, but merely that this is the case.

If I am wrong that is news to me and apparently to the Wisconsin Supreme court as well. In a random opinion I just pulled up to find some language for you all, is this majority opinion of the court authored by Justice Patience Roggensack in 2007:

In Arrowhead Farms, Inc. v. Dodge County, 21 Wis.2d 647, 124 N.W.2d 631 (1963), we ... grounded the requirement of good faith negotiation in a primary purpose of statutory condemnation: to provide just compensation to the property owner. Id. at 651, 124 N.W.2d 631.

¶ 7 In Herro v. Natural Resources Board, 53 Wis.2d 157, 192 N.W.2d 104 (1971), we ... explained the nexus between good faith negotiation prior to issuing a jurisdictional offer and the ability to exercise the power of eminent domain:

[U]nless there is a bona fide attempt on the part of the condemnor to induce the owner to sell the land at a reasonable figure, the condition under which the power is granted is not fulfilled, and in such case any attempted exercise of eminent domain is unauthorized and consequently void and of no effect. . . .

Id. quoting 6 Nichols, Eminent Domain § 24.62(1) at 85 (3d ed.).

¶ 8 In examining the negotiation efforts made in Herro, we reiterated that ch. 32 provides the exclusive procedure in condemnation actions, including the requirement to negotiate before making a jurisdictional offer to purchase. Herro, 53 Wis.2d at 171, 192 N.W.2d 104. We explained that we strictly construe the portions of ch. 32 that apply to condemnation by requiring that the condemnor complete all of the statutory steps because condemnation is in derogation of the common law. Id. (citing City of Madison v. Tiedeman, 1 Wis.2d 136, 83 N.W.2d 694 (1957) and Schroedel Corp. v. State Highway Comm'n, 34 Wis.2d 32, 148 N.W.2d 691 (1967)). Warehouse II, LLC v. State Dept. of Transp., 715 N.W.2d 213, 2006 WI 62 (Wis., 2006).

Warehouse II, LLC v. State Dept. of Transp., 715 N.W.2d 213, 2006 WI 62 (Wis., 2006)

What this means essentially as applied to this matter, is that the city's use of the power of eminent domain (through a process it calls condemnation), to attempt to partially take this BPer's private property (by reducing its value through a raze order, whether followed or not by title transfer to the city), for public use (in this case the public use at issue is that the city apparently thinks the public health/property values would be improved by razing the property) is subject to court and procedural review and to "just compensation" to the owner. I do not know all the ins and outs of the last part of that statement, including what court or procedural review process he could follow to fight the condemnation, which is why I recommended he talk to an eminent domain attorney. But it is clear that the city is using its powers of eminent domain to condemn private property here. That means he has rights to defend himself as stated by the fifth amendment to the US Constitution, Article I Section 13 of the Wisconsin Constitution, and generations of caselaw to back up partial takings/regulatory takings adjudication.

Feel free to push back more if I am wrong perhaps I am! I would be very interested to learn what other basis government has for taking or reducing value of private property. Eminent domain is the justification for innumerable government regulations and takings against private property owners so this is actually a very important topic. 

I suspect this would cost more to litigate to prove the point than the property Is worth

cities condemn buildings all the time and not only do they not pay you they lien the real property for the costs :) 

Many words in the english language have multiple meanings, condemn has at least 3 meanings 2 of which here are being confused. A municipality can condemn a building, order the destruction of the physical structure which is not the same as condemnation, the seizing of the land and its structures via eminent domain, and is not the same aw condemning, or expressing disapproval of the building. It seems mostly apparent from the ops description that the use of the word condemn here is in reference to building code violations being enforced in an order to destroy the physical structure on the land, and not seize the land through the use of eminent domain, nor to express disapproval.

And when a municipality condemns your physical building, you don't get compensation like you would via eminent domain condemnation, but rather you get a big fat bill for the cost of demoliting the property. Thats happened here to Jay and probably many other people here on BP.  The ability to enforce housing codes and such eminates from the states police powers, not from its eminent domain powers.

@Jay Hinrichs agreed litigation will almost always cost too much. Litigating anything is almost 100% of the time a terrible idea. You do not have to litigate to negotiate with a municipality though. Municipalities are made up of just a bunch of people trying to keep their jobs like anywhere else, and they will negotiate if they get a benefit from it.

@Russell Brazil Okay you are right. I guess I missed the part about code violations. I had thought the property was worth something and as it was just sold and the investor was fixing it etc. Maybe it is?

The city's argument will always be there is a health code violation no matter what it does that looks like a taking. A landlord here in Madison was hit with a raze order once for rat infestations, etc I think. A couple of days before they had scheduled to destroy it he sent a crew over and fixed it so they left him alone. I assume if they had destroyed a perfectly functional property he would have been able to show it was a taking not a health code violation they were engaged in and entitled to compensation. As the federal court in Wisconsin wrote about raze orders enforcement, "Such measures are not designed to appropriate property for public use at private expense ... but rather are designed to prevent the injury and disease which are so often the by products of substandard housing." Devines v Maier, 494 F Supp992 ED Wis 1980.