Condemnation in Real Estate: Definition and More

Condemnation in real estate often brings to mind images of decrepit, languishing and poorly maintained homes that pose dangers to their communities. The condemnation real estate definition, however, may surprise you.

In real estate, condemnation occurs when a government seizes private property from an owner and then compensates them for the property,” said Eyal Pasternak, a licensed real estate agent and the founder of Liberty House Buying Group in Miami. Unfortunately for the owner, they “don’t get a say in the sale.”

While the primary reason behind the government taking ownership of this property may be because of derelict conditions, this isn’t always the case. It’s important to understand the reasons that may be influencing this decision.

What is condemnation in real estate?

There are three primary reasons a federal, state and local government entity may move to condemn property.

Absentee owners

If a property owner is an absentee owner, it’s common for the property to be dangerous in some way due to a long period of neglect. The damage is usually significant and structural. Perhaps you can stand in the basement of a multi-story house and see the stars through the ceiling. Or a burst pipe has gone unnoticed and unrepaired for too long, causing structural damage to the house or an infestation spreading to surrounding properties. These are a few of the valid reasons why a city government may pursue condemnation of a property from an absentee owner.

Unpaid property tax liens

It may be that the previous owners weren’t up to date paying their property taxes. If they’ve fallen behind and stayed behind, the property can be condemned because of nonpayment. In this case, a tax authority often places a lien on the property.

Eminent domain

The state, federal or local government may be interested in taking private lands and using them for public needs. This may be for building a freeway, a neighborhood grocery store or a local park. In these cases, the government only needs to show the land is needed for public use and it has offered compensation. If property is taken under eminent domain, the owner is entitled to receive payment for fair market value. Eminent domain is the only type of condemnation that requires compensation.

The construction of Interstate 495 in Hopkinton, Massachusetts, is an example of eminent domain.

“The government took land from an owner to construct Interstate 495, which is now one of the largest road systems in Massachusetts," said Bill Gassett, a realtor with Maximum Real Estate Exposure in Hopkinton, Massachusetts. “Combined with the Mass Pike they are considered the crossroads of New England. Without the powers of eminent domain, some of the most significant road systems in our country would have never been built.”

How to find out if a property is condemned

Finding out if a property is condemned isn’t rocket science. There are a few ways to uncover a property’s history and learn more about its condemnation status.

“Condemnation is a matter of public record,” Pasternak said. “As such, the municipality keeps a list of condemned properties that you can search free of charge or for a small fee. Your local county clerk should be able to direct you toward resources surrounding the property, but finding out if a property is condemned could be as simple as using a search engine.”

If you’re eyeing a local property, it’s worth driving over to get the lay of the land. There may be signage posted making the public aware of the current condemnation status. This is particularly likely if the property is considered hazardous to the community.

Condemned properties are often on the path to bank foreclosure. Once these properties are foreclosed on, it can be easy to locate and move toward purchasing them. A real estate agent can help you locate prime foreclosure properties.

Another way to research a property and determine if it may be condemned is through a title search. These are excellent tools for uncovering any financial rulings against the owner of that property title that could affect you in the future. These can cost up to $200. They are well worth the price and peace of mind.

Condemnation vs. eminent domain

Condemnation and eminent domain are often used interchangeably. There’s a key difference between the two terms. Eminent domain gives governments the right to take over a property and compensate the property owner when undertaking works that benefit the greater public. That is the reasoning the government must use to justify itself in court. By contrast, condemnation is the physical act of taking over the property and compensating the owner for the fair market value.

Inverse condemnation: What’s the difference?

Once a property has been taken over by a government entity and the condemnation act is complete, communication between the property owner and the government is typically settled. In some instances, however, this isn’t the end of the line.

In some unique cases, property owners aren’t made whole when compensated for the property’s value. The next steps fall to the property owner to invoke inverse condemnation to sue the government to either return the property or become fairly compensated for its possession. It may be in a property owner’s best interest to seek their own property assessments and coordinate with their own legal representation.

What happens when property is condemned?

When a property is condemned by a local, state or federal government, the timing and steps tied to this process will depend heavily on the regulations and laws that govern the area. Generally, this is not a timely process—particularly if the issues are related to health or safety requirements.

When the condemnation process encompasses health and safety violations, this process often occurs over months or even years as notifications and citations are shared with the property owner. This process is designed to give them ample time to address any outstanding concerns. If the property owner fails to address the concerns by the governing entity’s deadlines, it may move into condemnation because of its hazardous nature. If a property is condemned as hazardous, the fix may be as simple as bringing the home back up to a habitable code.

Financial issues such as property tax nonpayment and their repercussions may begin impacting property owners on a much speedier timeline. Sometimes, these move as quickly as 180 days after payment is due. Making up these missed payments before any local deadlines may be enough to remedy the situation.

Conclusion

There are a variety of reasons a property may be condemned. While not all condemned properties are worth the time and energy to rehabilitate, it’s not a blanket label meant to turn away all prospective investors. Instead, a condemned property is a moment for pause and reflection about one’s abilities, time and resources. A condemned property can be a great business opportunity for the right investor.