Eminent domain: what homeowners need to know

Key takeaways

• The government can take your property for public use but must pay fair market value.
• Homeowners can negotiate, hire their own appraiser and may qualify for relocation assistance and a capital gains tax deferral.
• State laws vary, especially after the Kelo v. City of New London decision.

The government can take private property for public-use projects, but it must compensate the owners. "Eminent domain is the government's power to take private property against the owner's will," said Tanmay Shukla, an attorney in the Pacific Legal Foundation’s Property Rights practice group from Boston, Massachusetts.

This means the government could take possession of your house, yard or part of the property if a project requires it. Having your home or property acquired through eminent domain can be emotional and frustrating. The legal process typically happens after the government tries to buy land or negotiate with owners.

Eminent domain has limits, and homeowners should understand their rights

Eminent domain in real estate means the government can force the sale of private property for public projects, such as highways, schools or utility rights-of-way, as long as they pay fair market value. If you own a home in the path of such a project, this law can affect your property's value, your ability to sell and even your plans for the future.

Typically, the process is called condemnation, but that's not the same as condemning a house because it is unsafe. It's just the legal process for seizing a property.

Eminent domain only works if three requirements are met:

1. Public use: The property must be taken for a public project, like a road or utility. After a 2005 Supreme Court decision, some states tightened their rules to prevent takings for private development. Forty-seven states passed new laws and at least 12 changed their constitutions.
2. Just compensation: Owners must get fair market value for their property, not just what they paid or sentimental value.
3. Due process: The government must follow legal steps, including giving notice and a chance to challenge the taking in court.

The eminent domain process usually follows these steps:

• The government orders an appraisal.
• You get a written offer.
• You can negotiate or accept (yes, you can negotiate, treat it like any real estate deal).
• If you disagree, you can challenge the purported necessity or compensation.
• If talks fail, the government files a condemnation lawsuit.
• A court decides the outcome.

Keep records of everything: paperwork, emails, even phone calls. You should seek legal counsel to ensure you don't miss a deadline.

Just compensation is generally the fair market value of your property at the time of the taking, not what you paid or its sentimental value. Appraisers look at recent sales, property features and highest and best use.

"Fair market value is what a willing buyer would pay a willing seller in an open market," said Shukla, who works in the U.S. Court of Federal Claims. "If your entire home is being taken, you are entitled to its market value. This includes the value of any improvements on the property."

Even if the compensation for the property's value is being covered, there are more costs that fall on the homeowner during this process.

"Attorney's fees are not recoverable in most jurisdictions unless the owner prevails on specific grounds," said Jonathan White, managing partner at Jordan & White, LLC from Danvers, Massachusetts. "Relocation expenses, lost income during transition and the simple disruption of being forced to move are partially addressed by federal and state relocation statutes but rarely made whole."

If you are in the process of fighting eminent domain, get your own appraisal.

"Get a property rights attorney involved early, before negotiations harden, and work with them to get an independent appraisal," Shukla said. "Homeowners often think their only choice is to take what the government offers. That's almost never true."

Accepting a low offer could mean leaving thousands on the table, so compare with homes for sale near you to see what similar properties are worth. The government's offer may not cover moving costs or emotional loss.

Partial takings are common, like when a road expansion needs a strip of land. If the rest of your property loses value, you may get severance damages.

Appraisers often use the before-and-after method to measure how your property's worth changes, though other methods may apply depending on your state. In most cases, you'll get paid for what's taken and any loss to what's left.

Temporary and permanent easements resemble eminent domain in that they provide the government with access to private property. However, ownership remains with the property owner, who is required to permit that access.

"Permanent easements allow the government to use part of your property indefinitely, often for drainage, utilities or slopes, while you retain ownership of the property," said Lawton Jordan, an Atlanta-based real estate attorney at Williams Teusink. "Temporary easements give short-term access for construction work, such as driveway adjustments associated with road improvements."

You can challenge eminent domain and take the case to the courts. There are two parts you can dispute: the fair market value and the right to take.

First, you'll get a written offer. If you say no, you can negotiate or challenge the project's necessity or the compensation amount.

"The process usually begins with informal contact, an offer and an appraisal, often months before any formal taking," White said. "If negotiation fails, the government files a complaint and the matter proceeds in court. From first contact to final compensation, the timeline can run anywhere from several months to a few years, depending on the complexity and whether the owner contests the valuation."

If talks stall, the government files a condemnation lawsuit, and a judge decides if the project moves forward and what you'll get paid.

If you are challenging the case in its entirety, you will need to prove that the intended use is not for the benefit of the public.

"Property owners can challenge eminent domain actions, although completely stopping a project is often difficult if there is a legitimate public purpose behind it," Jordan said. "In some cases, owners can delay or temporarily halt a condemnation if the condemning authority fails to comply with statutory procedures."

Some homeowners have won by proving a project wasn't necessary or the compensation was unfair, but it's rare.

"In certain instances, the act of obtaining one's property can be contested, which can result in more compensation, but rarely changes the end result of the property being taken," said Jordan Del Palacio, home loan specialist at Churchill Mortgage from Renton, Washington.

Courts usually side with the government if the project meets public-use standards. Still, legal challenges can lead to better offers or changes to the project. If you're facing eminent domain, know that pushing back on the offer is often your best move, even if stopping the project altogether is unlikely.

"In recent years, many states have enacted reforms designed to strengthen procedural protections for property owners," Lawton Jordan said. "These measures often include advance notice requirements, appraisal disclosure obligations, relocation assistance, opportunities for mediation and limitations on takings for purely economic development purposes."

In the 2005 Supreme Court case Kelo v. New London, the court held that property could be taken for economic development purposes if the project benefited the broader public. This decision expanded how eminent domain can be applied by broadening the ‘public use’ test. Public use now covers projects that benefit the greater population. This could include generating more jobs, boosting local tax revenue and promoting the economy.

"Many states tightened their laws after Kelo, so what counts as a permissible public use now varies considerably by jurisdiction," White said.

If you get a notice, act fast:

• Read the notice carefully.
• Gather property documents.
• Contact a real estate attorney.
• Get your own appraisal.
• Review the government's offer.
• Negotiate or challenge if needed.
• Prepare for possible relocation.

The process might happen very quickly, so it's important to get started as soon as you get notice. "Don't sign anything, and don't have a substantive conversation with the acquiring agency before talking to a lawyer who handles these cases," White said. "Get an independent appraisal. Document the property carefully, including features, improvements and any income it generates. The single biggest mistake I see is owners accepting the first offer because they assume the figure is fixed. It almost never is."

In some states, quick-take authority lets the government take possession and start a project before the final compensation is set. They deposit estimated compensation with the court, so you get paid even if you're still fighting the case. Quick-take means you might have to pack up before you're ready, so don't wait to ask questions. This is used for urgent projects, but you can still challenge the amount or necessity.

If you're forced to move because of a federal or federally funded project, you may qualify for help under the Uniform Relocation Assistance and Real Property Acquisition Policies Act. This can cover moving expenses, replacement housing payments and other costs. Not everyone qualifies, so check your eligibility.

Eminent domain payments may be taxable under federal and state law. In some cases, you can defer capital gains tax by purchasing a similar property under IRS Section 1033. Always check with a tax professional.

Inverse condemnation happens when the government takes or restricts property without formal proceedings. If the government skips the formal process, you might have to take them to court to get paid. Regulatory takings happen when new rules limit how you use your property, lowering its value.