Government Powers: Police Power, Eminent Domain, Taxation, & Escheat

When studying for the real estate exam, we learn that a fee simple absolute estate is the maximum degree of property ownership one can have. But nothing is truly absolute! Even fee simple absolute ownership has its limitations, like taxation. That’s because the government retains some rights over your property through the 4 government powers- and you’ll need to know these for the exam.

To remember the 4 government powers, think of the name PETE.

Police Power

Eminent Domain

Taxation

Escheat

 

Police Power

Police power is the state's inherent right to regulate an individual's conduct or property to protect the health, safety, welfare, and morals of the community. Some common examples of police power, as it relates to real estate, are Zoning, Building codes and Rent control

Think of it this way, police power is not designed to take property away from you. It’s there more to set standards on how the property can be used. That is why compensation is not paid to property owners affected by police power. This is in contrast to the next government power.

 

Eminent Domain

Under eminent domain, the government can appropriate property if they feel it is for the greater good of the community. But the owner of any lands appropriated under eminent domain is entitled to reasonable compensation, usually defined as the fair market value of the property. Compensation for the property is paid through the process of condemnation.  

In some jurisdictions, the state will also delegate eminent domain power to certain public and private companies. This allows utilities, for example, to bring eminent domain actions so they can run telephone, power, water, or gas lines.

However, there are times when a property owner feels that they were not appropriately compensated by the government when the powers of Eminent Domain were applied to their property. In these cases, the property owner can file for Inverse Condemnation. Inverse Condemnation sounds tricky, but basically it just allows a property owner to file a claim against the government to recover just compensation for the property that was taken.

 

Taxation

Taxation is a bit more straightforward. Property taxes can be defined as a charge on real estate which is used to pay for services provided by the government. Unpaid property taxes result in a specific lien. This means you can lose your property if you don’t pay your property taxes, as opposed to a general lien, where items above and beyond your property could be seized to pay your debts.

 

Escheat

The last government power is Escheat. Escheat occurs when property reverts to state ownership after an individual dies without a will and without heirs. Escheat ensures that property always has ownership.  If nobody else has a claim on the property, the government steps in to manage it. And the Escheat process is usually revocable, which means that ownership of the estate or property reverts to any rightful heirs that might appear.

There are not many memory techniques for this one, except to say the government "cheated" to get the property because they don't know the person who died. Not trying to get political there- just a memory technique.

 

Well, I hope that helps you understand the 4 government powers a little better. Remember the acronym PETE, which stands for police power, eminent domain, taxation, and escheat.