While property ownership may represent the traditional version of the American Deam for many, it's not always a reality. According to Census Bureau data, for example, the homeownership rate hovers around 65%, meaning a sizable chunk of the population doesn't own a home.
Those who are fortunate enough to own land or property could potentially see some or all of it seized through a process known as eminent domain. Federal law allows the government to claim private property for public use on the condition that suitable compensation is provided to its owner.
- Eminent domain entitles the government to take land for public use.
- Property owners are rarely successful in stopping governments from taking their property under eminent domain. But the U.S. Constitution gives them the right to “just compensation."
- Property owners may dispute the price offered by the government and negotiate for a better deal. Many are successful.
How Governments Can Seize Private Property
Eminent domain has a lengthy history in the U.S. as a means of allowing the government to claim private property for public use. For example, some of the earliest instances of eminent domain being exercised by the federal government include the use of private land to construct public buildings, the facilitation of water supply to populated areas and the manufacturing and production of war materials.
In terms of how the eminent domain process works, it begins with the government identifying private property which may be necessary to seize. For instance, say there are plans to expand a publicly maintained interstate that take the new road through a plot of farmland you happen to own. The government will then work with appraisers to determine an appropriate value for the piece of land or property in question.
Eminent domain is not exclusive to federal government use. State governments can also use eminent domain to seize private property for public use.
What Eminent Domain Means for Landowners
To understand what eminent domain means for landowners, it helps to understand what it means to hold property rights. Broadly speaking, property rights refers to theoretical and legal ownership of resources and how those resources can be used. When you're discussing eminent domain, the term property rights is used in the context of land or buildings. Someone who has property rights can do what they like with the property with regard to how it's used (i.e. for business, residential, recreational or investment purposes).
The government doesn't have free rein to take someone's property, however. The Fifth Amendment to the Constitution states that “nor shall private property be taken for public use, without just compensation.” Just compensation means that a property cannot be seized unless the party whose property is taken (i.e. the individual or entity that holds property rights) is given full and adequate compensation for it in return.
As mentioned, the eminent domain process involves an appraisal of the property. Once the appraisal is determined, the government will make an offer to the property owner to purchase it. If the property owner accepts, they receive payment and the government assumes ownership of the land. If they choose not to accept, the process continues with condemnation proceedings. At this stage, the property owner may attempt to do one of two things:
- Secure an independent valuation of the property if they believe the price offered by the government is unfair
- Protest the seizure on the grounds that they disagree with what the property is intended to be used for
If a property owner contests the grounds for the seizure, the government must be able to prove that the proposed use is public, that the public interest requires it and the property is necessary for that purpose. Assuming these conditions are met, it's typically very difficult to stop an eminent domain seizure.
Compensation received through an eminent domain proceeding is subject to the same tax treatment as the proceeds of any other sale of real estate.
Potential Impact of Eminent Domain on Non-Landowners
If you don't own land or property you might assume that eminent domain is something you need never worry about. However, it's possible that you could be affected if you rent a property for residential or business purposes that is seized by the government.
Say, for example, that you rent an apartment in a building that's owned privately. The government decides to seize the building and turn it into public housing as part of an urban renewal project. This means first and foremost that you would need to find a new place to live. But it can also introduce sticky financial and legal issues if your lease agreement guarantees you some form of compensation due to an eminent domain seizure.
Assuming that your lease is terminated because eminent domain is being exercised, you may be able to recover your security deposit and any advance payments made against rent. But you may also be eligible to receive compensation for any costs related to being displaced as a result of the seizure. Talking to an attorney can help you determine your rights and what you may be entitled to.
If you're notified by your landlord that an eminent domain proceeding has begun, be sure to get a copy of your lease to review your tenant rights and eligibility for compensation.
Native Americans and Land Seizures
Some of the earliest instances of eminent domain involved the seizure of tribal lands held by Native Americans beginning in the 1700s and continuing throughout the 1800s. Some of these seizures were conducted through military force, while others involved treaty agreements. One of the most well-known eminent domain events was the forcible removal and relocation of members of the Choctaw, Chickasaw, Creek, Seminole, and Cherokee tribes from the southeast United States to what is now Oklahoma in the mid-1800s.
As part of a treaty agreement, the U.S. government agreed to pay the tribe $5 million along with compensation for houses and property. The treaty terms were rejected by the Cherokee Nation, who refused to leave their lands. Under orders from then-President Martin Van Buren, members of the tribe were rounded up and forced to walk cross-country. The "Trail of Tears" resulted in the deaths of approximately 25% of the tribe.
Today, there are specific laws in place governing the use of eminent domain for the seizure of tribal lands. Federal law allows state governments to take allotments held by the United States in trust for individual tribal citizens when necessary for public use. For example, states can claim these allotments if needed to allow for a utility easement. But states cannot claim tribal lands outright under eminent domain.
Tribal governments also hold the power of eminent domain to seize private property.
How Government-Sponsored Land Appraisals Work
The appraisal process is important for determining that a property owner is provided with just compensation following an eminent domain seizure. As such, there are specific appraisal standards and guidelines government agencies follow when determining a property's value. The federal government's appraisal process is very detailed and requires appraisers to determine:
- What the property is intended to be used for
- Its estimated market value
- When that value should take effect
Appraisers will review the details of the property, in terms of its dimensions, any improvements made to it, the condition of buildings located on the property and geographic location. They will also inspect the property to determine how things like soil conditions, topography, road access and water access may affect its value.
Sales history, use history, rental history and zoning requirements are taken into account. Similar to the appraisal process when buying a home, government appraisers will also conduct a market analysis to determine what similar properties are selling for in the area. Once all of the relevant information has been gathered, the appraiser will prepare their final valuation report which is what the government uses to determine just compensation.
When seeking an independent appraisal as a property owner, it's important to choose an an appraiser that specializes in eminent domain versus general appraisals.
What Is Eminent Domain?
Eminent domain is the government's right to seize private property for public use. The Fifth Amendment to the Constitution specifies that eminent domain can only be carried out if property owners are provided with fair and just compensation to make up for the property they're losing.
Can the Government Truly Seize Private Land?
Yes, the federal government and state governments have the authority to seize private land. Tribal governments also possess eminent domain powers. In the case of tribal lands, state governments may not exercise eminent domain but they may lay claim to certain allotments held by the United States. Property owners can challenge land seizures but it's difficult to stop the process once it's begun.
What Are the Other Potential Impacts of Property Seizure?
Having part or all of your property seized can result in tax implications if you're required to pay capital gains tax on the compensation you receive. Likewise, you may have to pay compensation to tenants if you rented out property that was seized through eminent domain. If you're a renter, you may be displaced from your home which could affect you financially if you're unable to find replacement housing at a similar price. On a larger scale, eminent domain can be abused if a property is seized without compensation being provided.
The Bottom Line
Eminent domain is a right that can be exercised by the federal government, as well as state and tribal governments. For example, in mid-2021 the Biden administration seized private land along the Texas-Mexico border, ostensibly for the construction of a border wall. Meanwhile, water supply shortages in the west have brought up new discussions about eminent domain. While property owners do have the right to receive compensation for property seizures in most cases, there's very little they can do to halt the process. Understanding how eminent domain may impact you as a landowner or a renter is critical for protecting your rights.