What Is Condemnation in Real Estate and What Do Homeowners Need To Know?

Even after a homeowner (or land owner) has paid off their mortgage, that doesn’t mean the property will be theirs forever. An owner could lose their property if it’s condemned. The condemnation of a property often results in the transfer of a property from a private owner to another entity, such as the government.

There are many reasons why a property would be condemned, including neglect, absentee ownership or unpaid property taxes. But you can fight a condemnation order. In fact, property owners have rights during every step of the condemnation process.

In this article, we will discuss the most important things to know about condemnation.

What Is Condemnation in Real Estate?

Condemnation in real estate is a legal procedure that allows an authority, usually a government, to acquire property from a private owner.

Typically, properties are condemned when the property owner has neglected their duties in some way. If the property is considered hazardous, unlivable or dilapidated, the owner might receive a notice of condemnation. 

Years of unpaid property tax liens or other problems with local government agencies could earn a property owner a notice of condemnation. The condemnation process might also be triggered if the owner of the property no longer lives on it or uses it.

Once the condemnation process is complete, ownership of the property is transferred from the owner to the government. In most cases, the owner will receive compensation equal to the condemned property’s fair market value. They will also likely have an opportunity to contest the condemnation in court.

After ownership of the condemned property is transferred to the government, it’s usually sold on the open market. Condemned properties typically sell below market value. If the property was condemned under eminent domain, it will be used for public use. 

What Is the Difference Between Condemnation and Eminent Domain?

The terms “eminent domain” and “condemnation” are often used interchangeably and ambiguously.

Both eminent domain and condemnation are processes that can give a government entity or private entity with eminent domain authority the right to seize a piece of real estate. But there are key differences between condemnation and eminent domain that property owners need to understand.

Eminent domain involves a government entity seizing private property to fulfill a public good. It’s typically unrelated to anything a property owner has or hasn’t done to a property. Condemnation, on the other hand, usually depends on the condition of the property.

Government entities commonly exercise eminent domain for public use, including new roads and highways or the construction of a stadium, park, school, library or public utility. 

Thanks to the Fifth Amendment of the U.S. Constitution, individuals who are subject to eminent domain are entitled to “just compensation,” which is the fair market value of their property.

How Does the Condemnation Process Work?

The exact mechanics of the condemnation process will vary based on where you live. Government agencies at the city, county, state and federal levels pursue condemnation differently, but there are procedures the various jurisdictions share in common.

The government condemns the property

First, the government must determine whether it has the right to condemn a particular property. The most common reasons for condemnation include safety violations, neglect, unpaid tax liens and absentee ownership. To start the process, the government must prove that the property falls under at least one of those categories.

Notice of condemnation

Once the government has decided to condemn a property, it must issue a notice of condemnation to the property owner. The notice will contain a lot of important information, including the reason for the condemnation and a proposed timeline for the condemnation proceeding (often 30, 60 or 90 days).

Option to contest the condemnation

If a property owner believes their property is being illegally condemned, they can contest the condemnation in court. If the owner can resolve the issue that triggered the notice of condemnation – such as fixing the property or paying overdue taxes – they can potentially stop the condemnation from moving forward.

The owner is compensated

If the court rules the condemnation is legitimate, the owner of the property is entitled to compensation. The standard guideline for compensation is fair market value, which is usually determined by an appraiser. If the property owner believes they are not receiving “just compensation,” they can challenge the amount in court.

Government control

Once the property owner has been compensated, the government owns and controls the property. The government may use the land for a public good or sell the property on the open market.

What Is an Example of Condemnation in Real Estate?

The condemnation process can be tedious and expensive. It is typically only initiated when absolutely necessary. 

Here is one scenario:

Riley (our fictional homeowner) inherits a home in another state. Riley neglects the property for years. 

Eventually, the roof caves in and rain rots out the walls and floors. Critters have moved in, and local kids sometimes use the home as a hangout, even though it’s clearly unsafe to be there. The neighbors contact their local government to do something about the place.

The government issues a notice of condemnation that goes uncontested in court. If a property is abandoned long enough, the government may have the right to seize it and even enter it, especially if there is severe structural neglect. The exact rules for how this process plays out will vary by jurisdiction. 

A professional appraiser visits the home and determines the market value of the property is $250,000, which is what the government pays Riley. Then the government may put the property on the market and sell it.

What Is an Example of Eminent Domain in Real Estate?

Perhaps the most famous example of eminent domain is the development of the Interstate highway system. The Department of Transportation estimates about 475,000 households (more than one million people) were displaced during its initial development phase between 1957 and 1977.^[1]

Without eminent domain, developing sophisticated infrastructure projects, like a highway system, would likely not be possible or would be even more challenging. At the same time, eminent domain can cause harm to the households and communities it affects. That’s why eminent domain and the definition of “public good” are often hotly debated.

What Is Inverse Condemnation?

In some cases, government actions can directly affect the value of a piece of real estate. When this happens, property owners might be entitled to compensation from the government, also known as inverse condemnation.

Any government action that substantially decreases a property’s value – even those that don’t directly involve a property – can trigger inverse condemnation. 

For example, if the construction of a city waste management plant next door causes a property’s value to decrease, the homeowner can sue for compensation. To win the lawsuit, the homeowner must prove they suffered financial damage from the city’s actions.

When It Comes to Your Property, Knowledge Is Power

The best way for property owners to avoid condemnation is to fulfill their duties as property owners and understand their rights. Even if the condemnation process is in motion, there are steps you can take to try and take back your property.