all future income...discounted to present value at a discount rate...

yes, quite literally

So if the house generated $100,000 in rental income annually forever...and the appropriate discount rate is 10%, then yeah they would be on the hook for $1m

In the same vein that in a wrongful termination lawsuit you can receive not just the income from the period you weren't working, but to be compensated for expected future income based on a number of factors.

This isn't some crazy concept dude, its the foundation for valuing literally anything. If I burned down someones rental property I would expect to be on the hook for the present value of future cash flows. Things can be worth more than their material cost my guy. In a similar vein, say you're at a store and you break a lamp costing $10,000. It doesn't matter if the lamp's materials costed $1000...the expected future revenue from selling that lamp was $10,000 which is what you owe. You can't go into a store and break $200 headphones and tell them 'oh well, the material cost of the headphones were only $20 so I'm giving you $20 and we're even'

its literally one of the fundamentals of how you set a price for anything that generates cash flows