Land Acquisition Guidelines for Nonprofit Organizations

Nonprofit conservation organizations (NCOs) applying to the Department of Natural Resources for grants to purchase land or partial interests in land (easements) must follow certain acquisition, appraisal and relocation procedures in order to be eligible to receive grants. These procedures are designed to ensure fairness, meet federal and state government requirements, and also protect the interests of landowners, NCOs and the state. Failure to comply with these procedures may disqualify an organization from funding. The Community Services Specialist (CSS) in your Region can answer any questions you have regarding these guidelines. Please feel free to call your CSS whenever you have a question.

Landowner Negotiations

All negotiations between a landowner and NCO must be conducted on a "willing seller - willing buyer" basis. We recommend that organizations notify landowners that they may be receiving grant assistance from the state. If your organization cannot purchase a property unless assured of receiving a grant, you may wish to include the following clause in the Offer to Purchase:

"Name of Group is applying for a grant under the Knowles-Nelson Stewardship Program. This offer is contingent upon receipt of a grant of at least $______________ from the State of Wisconsin."

If you are acquiring an easement with a Stewardship grant, we require full disclosure of the grant conditions to the landowner so the landowner understands the extent of the Department's involvement in the project. The interests of the state must be referenced in the easement document itself or the landowner will need to sign a "Landowner Notification Form" that is attached to and recorded with the Grant and Management contract.

Acreage, Legal Descriptions and Property Boundaries

It is imperative that you obtain an accurate legal description of the property and determine the correct acreage. You will need this information for the appraisal and your grant application. It is also important to verify all property boundaries and ensure there are no encroachments by adjoining property owners. At the least, you will need to walk the boundaries to see that they are accurately marked.

The best way to verify acreage, boundaries, and the legal description is with a survey. If there are any questions about any of these matters, you should order one. It may help avoid disputes later. If you receive a grant, the Department will cover 50 percent of the cost of a survey.

If you are acquiring an easement on a property, and the property is being divided into several different zones or use areas, it is likely the Department will require a survey to delineate those different areas.

Appraisals

Because an appraisal is the most reliable way to determine fair market value, most grants are based on the appraised value of the property (see Calculating Land Values). One appraisal is required for property valued below $200,000; two are required for property above $200,00. When one appraisal is required, the project sponsor must commission the appraisal, and then if a grant is awarded, the Department will cover 50% of the cost. When two appraisals are required, the sponsor orders and pays for the first appraisal, and the Department orders and pays for the second. In rare cases, the Department may also require a third appraisal. In this case, the sponsor orders the third appraisal and the Department covers 50% of the cost.

All appraisals must comply with established Department standards. These are explained in detail in a technical bulletin called the Real Estate Appraisal Guidelines (PDF, 47KB). The guidelines describe three types of appraisals, which are appropriate for different property values. Check with your CSS for the most current values, as these might change:

All appraisals are subject to Department review and approval. Because the Department cannot accept an appraisal that fails to conform to the guidelines, we encourage you to follow the procedures and recommendations listed below. Failure to do so may result in an appraisal that cannot be accepted. This will waste time and money and be discouraging for you. The Department cannot cost share on appraisals that do not meet Department standards.

1. Choose a qualified appraiser. All appraisals must be done by a State Licensed or Certified Appraiser. Choose an appraiser who is familiar with the Department guidelines; has previously completed acceptable work in public land acquisition; is familiar with comparables in the area; and, if the appraisal is for an easement, has experience doing easement appraisals. Your CSS will provide you with an Appraiser List, but know that being on this list does not constitute a recommendation. Any appraiser can ask to be added to the list. You may want to check with other NCOs for the names of appraisers who have done good work for them.
2. Any appraisal commissioned by the seller of the property will be rejected.
3. Contact your local DNR Real Estate Specialist and discuss the appraisal assignment BEFORE commissioning an appraisal. The Real Estate Specialist will work with you to obtain an appraisal that complies with the guidelines. Your CSS can provide you with the name of the person to call.
4. Provide your appraiser with a copy of the most current Real Estate Appraisal Guidelines and insist that he/she also call the DNR Real Estate Specialist before beginning the assignment. Our Real Estate Specialists would rather spend 10 minutes talking with you and your appraiser beforehand than many hours reviewing a poor appraisal.
5. Indicate to the appraiser that the appraisal must be approved by the DNR, as well as your organization, before final payment is made. The appraiser should also agree to fully cooperate with the DNR appraisal reviewer and answer any questions they ask within 10 days of the request.
6. Obtain quotes from several different appraisers as the cost can vary significantly.
7. When contracting with an appraiser, it is important to provide good instructions regarding the assignment. (Changing the assignment later may result in an additional charge.) Give the appraiser all the information she/he needs to do an accurate appraisal of the property:


a. Name and telephone number of landowner
b. Whether the appraisal is for a fee simple acquisition or an easement
c. Location of the property including county, town and road
d. Plat map
e. Correct legal description
f. Survey, if one is available
g. Correct acreage
h. Current or previous year's tax bill, if available
i. Zoning
j. Information about any existing encumbrances
k. Any special rights being retained by the landowner
l. List of improvements that should be included in the report.
m. Property Condition Report or Environmental Hazards Report
n. Copy of easement, if applicable

8. In general, the Department will not provide grants for the purchase of houses or outbuildings even if they are within project boundaries unless there is a compelling reason to do so. If a parcel with buildings is purchased by an NCO, the value of the buildings and land immediately surrounding those buildings will, in most cases, be deducted when determining grant amounts. (The number of acres deducted may need to be sufficient to meet local zoning requirements.) This will have a significant impact on DNR appraisal needs so it is important to discuss this with your CSS before ordering an appraisal.
9. Timing is a critical factor when ordering an appraisal. On the one hand, an NCO may not want to incur the expense of the appraisal unless it is assured of receiving a grant. On the other hand, the appraisal must be done in a timely manner or the appraised value will not accurately reflect the market value at the time of the sale. While an NCO does have some flexibility as to when it orders an appraisal, the effective date of the actual valuation should be within one year before the date of purchase by the NCO. The effective date of the appraised value cannot be after the date of purchase.

The appraisal process is detailed and can be lengthy. We recommend that you order the appraisal as early in the acquisition process as feasible. It frequently will be to your advantage to do so. If you do the appraisal before you actually execute an Offer to Purchase, you will know the market value of the land before you negotiate a price. In addition, you will know how much grant funding you are eligible to receive which could affect the amount you can offer for the property. Also, in the Local Assistance Program, extra rating points are provided to those applications that have a completed appraisal.

Environmental Hazards

The Department requires an environmental site inspection of all property acquired by an NCO with a Stewardship grant. This inspection may be done by a representative of the NCO using the Environmental Hazards Assessment Report form (DNR Form #1800) (PDF, 9KB) as a guide. Grant payments cannot be made until the Department has received and approved this form or an acceptable alternative.

This is a critical step in the acquisition process and should be undertaken by the NCO either before or immediately after an Offer to Purchase is signed and before the appraisal is ordered. The long-term financial ramifications of purchasing property with environmental hazards are significant and could conceivably destroy the financial viability of an organization.

While no property should be assumed to be free of contamination, certain types of property are more likely to be contaminated than others:

• Any site previously developed and now vacant
• Any current or previous industrial or commercial site
• Any site used for storage or warehousing of commercial or industrial materials
• Orchards
• Railroads and railroad spurs
• Suspected former landfills
• Areas without vegetation
• Areas with monitoring wells
• Areas with a history or likelihood of underground storage tanks
• Any site adjacent to any of the above

The fair market value of property can be significantly impacted by contamination on the property itself or on adjacent property. Under no circumstances should a property that is suspected of being contaminated be appraised, acquired or a grant application filed without disclosure being made to your CSS, the appraiser and the appraiser reviewer.

If your initial inspection indicates that there may be contamination, you should either reconsider your decision to purchase the property or order a Phase 1 Environmental Assessment (EA) from a specialist in the field to determine the presence or absence of a recognized environmental condition. To be safe, you should usually order a Phase 1 EA for any of the "lands of special concern" listed above.

You will need the landowner's permission to order an EA, plus you must determine who will pay for it. If you receive a grant, the Department will pay 50% of your costs of a Phase 1 EA as part of the grant. The Department, however, cannot help pay for the costs of clean-up under the Stewardship Program.

If a recognized environmental condition is discovered you will also need to obtain a Phase 2 EA to determine the presence or absence of contaminants. The Department may agree to cover 50% of your costs for the Phase 2 EA, but you must receive Department approval prior to beginning the work. If the presence of contaminants is identified, then the DNR regional remediation and redevelopment staff will determine whether a full site investigation is needed. At this point, further requirements will depend on the results of the Department review.

For property suspected or known to be contaminated or if adjacent property may be contaminated, the site assessment, Phase 1 EA, Phase 2 EA, and full site investigation if needed, must be completed before an appraisal is ordered. This will avoid wasting time and resources on an unusable appraisal or on property that you may not be able to acquire in the anticipated time frame.

If a property has been appraised and then contamination is discovered, the appraisal will no longer provide a valid measure of fair market value until the appraiser updates the report to reflect the contamination and the cost of remediation. It is not possible to determine the fair market value of a property suspected to be contaminated until the extent of the contamination is known, a remediation plan is completed and reliable bids (not estimates) for remediation have been received. Consequently, any appraisal prepared before this information is available is considered speculative and will not be approved for grant purposes.

Additional information on contaminated property is available from the NR Bureau of Remediation and Redevelopment. They have a number of fact sheets on this topic including Assessment Assistance: Department Publication SW-510-95, Fact Sheet 3, Step One of Conducting a Thorough Environmental Investigation: Phase 1 Environmental Assessment and a Phase II Scope of Work.

For property that was or is contaminated, the transaction should not be closed until one of the following is obtained (best choice may depend on legal counsel), and the Department has approved the method of resolution for grant purposes:

1. A Phase 1 or 2 Environmental Assessment indicating the property is clean.
2. A "Certificate of Completion" of necessary remediation, also called a Close Out Letter, issued by the DNR.
3. An off-site exemption letter from the DNR. For properties with off-site contamination, property owners can get an "off-site exception" letter from the Department relieving them of responsibility for clean up of soil or ground water contamination migrating onto their property, if the owner can substantiate that the source is not from their property. However, the use and value of these adjacent properties can be impacted, and these impacts must be recognized and considered in the appraisal process. For instance, wells may not be permitted on adjacent lands, which may limit use of the property.
4. A "Voluntary Party Liability Exemption" or VPLE secured by the buyer. A VPLE is a release for an innocent landowner so that the buyer does not become responsible for the contamination problems. See Fact Sheet 2, Limited Liability for Purchasers of Contaminated Property (available from the Bureau of Remediation and Redevelopment). Any restrictions on the use of the property, and any market stigma caused by the contamination must be considered in the appraisal.
5. The least preferred method for taking ownership of a contaminated property requires a completed remediation plan, reliable remediation bids, an agreement with a responsible party as to who will be responsible for remediation and escrow of all or part of the purchase price to assure compliance with the remediation plan. Without a plan and remediation costs, it is impossible to determine a reasonable value for the property. Any restrictions on the use of the property, and any market stigma caused by the contamination must be considered in the appraisal process.

Relocation Benefits

Relocation is a program regulated by federal and state laws that protects persons displaced by either government-sponsored projects or projects that receive government funding. The purpose of relocation is to ensure that persons are compensated fairly for their property and for any other losses incurred as a result of a publicly funded project.

Any NCO that receives grant funds for more than 10% of acquisition costs from state or federal government must comply with relocation laws. This means that if an NCO receives a grant from the Department for property whose purchase will cause the involuntary relocation of a tenant from a building, the tenant is eligible for relocation assistance from the organization. A landowner who voluntarily sells a property to an organization is not considered a displaced person under the relocation laws, nor is a tenant who can remain permanently on a property subject to normal rental conditions. If a tenant voluntarily decides to move, either at the time of the purchase or later, the NCO should have that tenant sign a statement indicating that the decision to move is a voluntary one.

The dollar amount of relocation assistance is set by the Department of Commerce (exit DNR), which administers relocation laws. Relocation costs vary greatly depending on the situation, but they rarely exceed $5,000. NCOs are eligible for 50% grant assistance for relocation.

The responsibility for complying with required procedures rests with the buyer under state and federal law. If a tenant is being displaced, the NCO may have to prepare a Relocation Plan in accordance with Department of Commerce guidelines or it may receive a written determination from the Department of Commerce that relocation payments are unnecessary. Information pamphlets on relocation benefits can be obtained by contacting the Relocation Office, Department of Commerce, Relocation Unit, Division of Community Development, 201 West Washington, Box 7970, Madison, WI 53707. The telephone number is 608-264-7822. Information and forms are also available from the Department of Commerce search for Relocation Plans.

Legal Review for Land Transactions

Land acquisition is a legal transaction, frequently involving large sums of money. Your organization should have a real estate attorney review all documents relating to the transaction, including deeds, title reports, options, offers, and easements.

Title Insurance

Grants for land acquisition are a significant investment of state dollars, and the Department requires that project sponsors protect that investment by obtaining Title Insurance for both land and easement acquisitions. Either a Title Commitment Report or Title Insurance Policy must be approved by the Department before any grant payment can be made.

The Title Commitment Report, also called the Preliminary Title Report, is issued prior to the closing on a property. The report:

1. provides documentation that the individual you are negotiating with is the sole owner of the property and has the legal right to sell it to you
2. identifies anyone else who else owns rights in the land
3. Summarizes of all the information that appears in the public record about the property, including any liens, mortgages, debts, court actions, back taxes, utility and road easements or other types of claims or encumbrances on the property.
4. identifies any encumbrances on the property that would prevent it from being managed for conservation or public recreation purposes.

The grant applicant and their attorney should review this report carefully.

The Title Commitment Report identifies all recorded defects in title, but it does not guarantee that there are unrecorded defects not known to the title insurance company. A Title Insurance Policy insures the buyer of the property against any losses caused by defective or unmarketable title, other than those exceptions specifically listed and excluded from the policy. It is issued after the transaction has closed.

The Title Commitment Report is valid only up to the date it is prepared. The gap between preparation of the title commitment and the date of the closing must also be covered by the Title Insurance Policy, usually through gap coverage.

Grant applicants sometimes make the mistake of ordering title work near the end of the grant process. This can cause considerable difficulty if the Department receives a title commitment shortly before a closing and discovers the title has major defects, which either disallow the grant or stall the process until the matter is cleared up. This has occurred on several occasions so we recommend you send us a copy of your title commitment as soon as possible.

The Department evaluates each exception to the title. All exceptions are evaluated on a case by case basis, however, exceptions that are generally not acceptable and must be removed include the following:

• Mortgages
• Judgment liens
• Delinquent tax liens
• Conditions, covenants, restrictions that will adversely affect your ability to protect the property or provide public uses, including subdivision restrictions that limit use to residential purposes only
• Pending lawsuits and ownership disputes

Exceptions that are generally acceptable include:

• Utility easements
• Subdivision conditions, covenants and restrictions, unless they restrict use to residential purposes only (which excludes conservation or public recreation uses)
• Access easements (unless the access significantly impacts the natural or recreational values of the property)
• Current, but unpaid taxes