Eminent Domain: What to Do When the Government Tries to Steal Your House

21

Did you know that the government has the power to legally take your property from you? 

That power is called “Eminent Domain” and it is derived from the Fifth Amendment to the US Constitution which says in part “…nor shall private property be taken for public use without just compensation.”  This short clause gives all governments, federal, state and local, the power to take your property through a process called condemnation.  However, your property has to be taken for a “public purpose” and they have to pay you “just compensation.”  Let’s examine this a little closer.

Modern Day Eminent Domain

The term “public purpose” has been greatly expanded in scope in recent years.  It used to mean that the government could only take your private property for a truly public purpose, such as building or widening a road, building a school or senior center, utility rights-of-way, things that most would say are traditionally public purposes.  The relatively famous Supreme Court Case known as Kelo significantly broadened the definition of “public purpose.”

In the Kelo Case, the Supreme Court ruled that “economic development” is a public purpose.  In other words, increasing the tax base is a public purpose.  What does that mean to you?  Let’s say you have a single family home that your family has lived in for generations.  A developer comes along and wants to build a shopping center, high rise office building, casino or what ever – and needs your land but you do not want to sell.  The Kelo ruling means that the government can now take your property and give it to the developer for the so called “public purpose of economic development.”  There are variations from state to state, but this is perfectly legal.

But they have to pay you for it right?  That is what that phrase “just compensation” means, right?  Yes, that is correct. The government cannot simply take your land without paying you, but how is “just compensation” arrived at?  It is supposed to be the highest price for the best and most profitable use of the land.  But who will decide that?  Let’s take the example above.  Should “just compensation” reflect the value of the single family home or should it reflect the value of the new shopping center?  Which value do you think the government utilizes?  Yep, the single family home value is the one they want to pay.

And here is the kicker with eminent domain: the government holds all the cards. 

Don’t want to sell? 

Too bad… the property will be taken from you if they really want it.  Think you can hide from them by not returning phone calls or responding to letters, think again.  Think you can stall them by not agreeing to a price?  You may be able to for a while – but here is what will happen:  The government will simply record a deed of transfer, place what they feel is just compensation in your bank account or in escrow … and the property is theirs.  Next, they will simply forcibly evict you if they have to.  What if they did not pay you enough to pay off your loans?  What if you do not agree with the price?  You still owe the bank the full amount and now to you have to go to court to prove that the “just compensation” was too low.  How many of you are up for that fight?

How to Deal with Eminent Domain if it Happens to You

Thankfully most local governments are not overflowing with cash so this power is not used as much as it could be.  However, what if your property becomes a target of eminent domain? What should you do?

  1. Take any talk or rumor of eminent domain seriously.  Condemnation power is an awesome power and like I said, they hold all the cards.
  2. Talk to the people in charge of the case for the government.  Get all of the facts you can.  Who is proposing this?  What is the purpose?  When do they plan to do it?  Why?  What are they offering?
  3. If you want to sell, great.  Negotiate the best price you can and cash your check.
  4. If you do not want to sell or you think the offering price is too low, hire an attorney familiar with condemnation cases.  The government will have lawyers working for them and their incentive is to get the property as cheaply as possible.  You will need expert help to fight this.
  5. If you do not want to sell, your options are going to be very limited.  You can attempt to voice your concerns with the local legislative body (city council, for example) as they may have final say – but that may have little or no effect.  Ultimately, as I said, the government really holds all the cards.   Again you will need some expert advice to help you.

Condemnation is an awesome power granted to the government and it begs the question, do you really own the property?  That is, however, a question for another post.

Have you ever faced condemnation?  What were your experiences?  Let us know in the comments.

Photo: (OvO)

Subscribe to our mailing list

* indicates required Email Address * First Name Last Name

About Author

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

21 Comments

  1. Kevin, you raise some good points, but I’d like to offer a slight modification to your approach. In many states, like California, the eminent domain process is strictly controlled by statute, and the property owner has specific rights if they exercise them in a timely manner. Therefore, I would recommend hiring an attorney who knows eminent domain law before engaging in any direct negotiations with the government rather than waiting. Also, people should be aware of what you mean by “government.” Many agencies, such as your local water district, school district, transportation agency, and for those states who still have them, redevelopment agency, also have the power of eminent domain. By the way, the Supreme Court in Kelo didn’t expand the law as much as affirm that the government had the legal authority to do what was being proposed. This upset many people, and legislative efforts nationwide were launched in an effort to limit this power. Most of these efforts failed.

    • Kevin Perk

      Jeffery,

      Thanks for reading and adding your comments.

      You are absolutely right that the condemnation process varies from state to state. Some states are more “friendly” towards property owners than others.

      And again, depending on the state there can be a whole host of governmental organizations with condemnation power like you point out. We tend not to have too many of those in the south so thanks for that clarification.

      I too recall many efforts to reign in condemnation after the Kelo decision with most of them coming to nothing.

      Thanks again for sharing your insights,

      Kevin

  2. Hi Kevin and Jeffrey,

    Thank you so much for posting about this obscure topic.

    Thank God this is not an issue that people come across very often, but certainly I can happen to any owner of a piece of RE. Better to be prepare!

    • Actually, this comes up a lot more frequently than people realize, but very rarely with residential property. More often, it occurs with small segments of vacant land segments for right-of-way improvements, or road widening projects, and periodically with commercial property adjacent to existing government buildings. Since compensation is mandatory, and there are often no other buyers for these properties, owners are often very willing to sell, and in some cases there are significant tax benefits as well. And some commercial tenants are starting to demand a share of the severance damages if they lose a lease to condemnation based on future rate advantages they’ve negotiated for long-term leases. It’s no longer just the property owner who might be affected if all or a portion of property is subject to eminent domain.

      • Kevin Perk

        Jeffery,

        Good point about leases. We have a clause in our leases that says in effect that the lease is terminated if condemnation is exercised and that we are held harmless. It is not our fault they took the property, there was nothing we could do to stop them.

        Also good point about rights-of-way. Sometimes governments will just take a portion of the property to expand or build a road. That is why you see homes so close to a 4 lane highway. They did not build that close to the highway, that was all that was left after the state highway department took the front yard.

        Thanks again,

        Kevin

    • Kevin Perk

      Horizon,

      It can happen.

      The best thing I have found is to keep up to date with what local governments are doing (since they are the ones most likely to use this power). For example, I specifically subscribe to a daily paper here in Memphis that publishes all of the public notices and I look at them every day. You just never know what they might be up too. If you catch it early rather than late you tend to be in a much better position. Plus that same paper publishes daily real estate transactions, so I get a double bonus.

      Thanks for reading and commenting,

      Kevin

  3. Kevin,

    Great article! I love mentioning stuff like this when people insist on paying their houses off almost like it’s full proof. I always tell them “stop paying your taxes and you’ll see who owns your house!”

    Best,
    Dave

  4. Had this happen and still happening with an income property thankfully they are just taking a portion to expand the road but have been going through exactlly what you are stating. Nothing I can do to stop them. I like the lease clause good comment!

  5. I lived thru this for three years in New Orleans. You make good points but in our case they weren’t the most effective. Nothing stopped or changed the process. The best some of us were able to do when it was all said and done was to be screwed slightly less. IMO, the best defense is neighborhood organization and visibility. The State of La and New Orleans just expropriated the largest urban residential grab in the history of eminent domain. Lots of people argue the semantics of it. Usually the people who stand to profit (developers, investors, city planners, etc) have one story and a large PR campaign which is often much different than the reality of the situation.

    It is a long and exhausting process but having as many neighbors and businesses band together, share information and strategically fight is the best weapon IMO. In my experience, many people have different agendas; some want to save their house because they are third generation family, some think they are going to make money, some just ride the coattails of those doing the work or a variety of things. In our case those that fought got the best ‘deal’. The fight has to be visible, constant and personal. People care about people and you have to make the larger community and legislators care about those people. The ‘other side’ tried to marginalize those of us in this community in many different ways. It was a very frustrating process because the ‘other side’ had a well funded posse of lawyers and PR campaigns. They do things that you wouldn’t think they would do. That people outside of the situation would never believe. I wouldn’t have if I didn’t live thru it.

    Read your paper. I woke up one morning, got my coffee and paper out and found an article that said the government was coming to tear down my neighborhood.

    • Kevin Perk

      Bobbi,

      Sorry you have had to go through this. I know it can be exhausting. Actually, they kind of count on that. It is their job to get your property and they can devote their full energies to it. While you have to do everything you used to do (job, kids, school, whatever) AND fight city hall. It is a tactic to drag it out and make the process very difficult.

      You were smart to band together with your neighbors. Community pressure on a politician is the only thing that will work sometimes.

      You wrote that you work up and read about it in the paper one morning. I mention this here because it is so important to keep up with what your local government was doing. Honestly, by the time you read about it, the train had already left the station. But surely there were other public hearings and studies that were done that if you had known about them you could have spoken up much earlier in the process. But another strategy is to keep people in the dark as long as possible. It is hard to keep up with everything city hall is doing, which is why I go to my local REIA group and read the local legal paper so I can hear about things early.

      Sounds like you got to experience some nasty politics, but you also found out you can fight city hall, but it is very hard and time consuming to do so.

      Hope things work out for the best. Thanks for sharing your experiences,

      Kevin

  6. In my experience, the decision is made before the studies or public hearings are done and they are only done to satisfy a legal requirement. In our case, the public hearing or studies weren’t done before hand. It was only because several of us spoke up and wrote many letters to legislators and the regulating bodies about the studies not being conducted legally that it shone light on the subject and they were forced to go thru the motions. This at least slowed down the process and made it slightly more visible to the public eye.

    I agree with the exhaustion being a tactic by the other side. They have nothing but time and money, this is their day job. On the other hand, we have a life. We have parents that get sick and need our attention, we have children and spouses, we get high blood pressure from the constant state of stress, we get pregnant and have children, we have a day job and a night job, we live in the constant turmoil of the situation and many of us give up because we are tired and depressed.

    Another large lesson my naïve self learned, was just how biased the media really is. I didn’t realize that newspapers take a stand on issues and all of their articles reflect their stand. Our group went before the editorial board the of the local paper requesting that they take a ‘neutral’ position. Wow… how crazy is that? Here we are as citizens of city begging the media to take a neutral position. We had documents, maps and papers out the wazoo trying to make our case. Anyone that believes that media is not biased is plain ignorant of the way things really work.

    Thankfully that is over now, but it consumed almost three years of my life.

    • Kevin Perk

      bobbi,

      Your words speak the truth about the power that the government has. It sounds like you have learned some valuable lessons, especially about the media. I have witnessed similar circumstances here with article after article, day after day promoting one particular view point. The thing is if the media does not promote then they do not get access to city hall anymore. Sad, but true.

      Perhaps the silver lining in all of this is that you and your experience will be able to help someone out in the future.

      To everyone else out there, imagine fighting city hall like bobbi did for three years. Would you have that much fight or money or time?

      Thanks for your insightful comments bobbi,

      Kevin

  7. Has anyone had the experience where the government made an offer but not enough to pay-off your mortgage. I am willing to move and start over but we are battling with a difference from their appraisal and my mortgage payoff of about $15,000. This is so frustrating and I am scared. How can I get another mortgage if a balance still showing for 15K? Their appraisal is low and I am getting an attorney. Any advice?

    • Char, in most situations, there will be a disagreement over the value – a discrepancy between two appraisals. In California, the Jury gets to decide which one prevails, or they may split the difference. If the Jury decides on an amount that makes the agency offer seem like a low ball and awards the higher amount, the property owner can often recover the higher amount plus their attorneys’ fees. On the other hand, if the Jury’s decision comes back closer to the offer than your demand, all you get is the amount awarded. Your attorney will help you get a qualified appraisal.

    • Kevin Perk

      Char,

      I have, but thankfully we were able to get the action stopped by banding together with our neighbors and speaking up at a city council meeting.

      What you describe is typical with governments. They are likely lowballing you and “working” with an appraiser. Unfortunately, they will hold most of the cards. I do not know where you reside but I bet the process is similar to the process here in Tennessee.

      If you do not agree on a price, the government will simply take the property and deposit the money in your bank account and kick you out. It is then up to you to challenge their price in court. Yes it sucks but that is how it works.

      You definitely need and attorney for this. Find one that has experience with condemnation cases. Do you have any realtor friends who can help you with comps? Get some referrals for competent appraisers and hire one to help you out. Finally, don’t be scared. They are trying to take your property! Get mad and fight for what you deserve!

      Good luck,

      Kevin

Leave A Reply

css.php