(MONEY Magazine) – On a muggy morning last September in Washington, D.C., Susette Kelo, a nurse from New London, Conn., sat in a crowded hearing room on the second floor of the Dirksen Senate Office Building. The Judiciary Committee had called a special hearing on the use of eminent domain--the government's power to take land from private citizens for public use--and Kelo, 49, was the star witness. Through the rounds of opening statements, she waited, hands neatly folded on the green felt tablecloth. Finally, Arlen Specter, the committee chairman, signaled that it was her turn to speak. In a hushed monotone that quieted the standing-room crowd, she began: "I'm the Kelo in Kelo v. City of New London, the now infamous U.S. Supreme Court case in which the court ruled that private property, including my home, could be taken by another private party who promises to create more jobs and taxes with the land."

Kelo's appearance on Capitol Hill was the latest chapter in her lengthy and all-consuming battle to reclaim her home. The fight had begun in 1998, when the city of New London unveiled plans to let a private developer build condominiums, shops, parking lots and a hotel in the area known as Fort Trumbull, a neighborhood that included Kelo's house and about 115 other lots. For New London, a hard-luck industrial town, the project held the promise of a much needed economic boost, which would bring new businesses and jobs to the area. If the homeowners wouldn't sell their land voluntarily, the local government, citing eminent domain, threatened to take it by force.

The idea that private developers could take her home so that other people could live on the land was anathema to Kelo. A highway or a school would be understandable--that's what eminent domain was for, she thought. But condos? "What's the matter with me? Why can't I live here?" has been her refrain almost from the start. She banded together with other holdouts to sue the city, challenging its right to take her home in the name of the greater public good. In so doing, she became the face of a highly public case that, in many peoples' eyes, did nothing less than put the American dream on trial.

Seen in that light, the American dream lost. Justice John Paul Stevens, writing for the majority in a 5-4 decision last June, declared that the development plan "unquestionably serves a public purpose." In effect, the Supreme Court decided that if you're unlucky enough to live near a few deserted lots and your town figures that a row of condos would produce more tax dollars, there's no legal reason the town can't clear the way for the more profitable owners. (In fact, plenty have already done just that: A study by the Institute for Justice, a libertarian public interest law firm in Washington, D.C., found more than 10,200 cases nationally between 1998 and 2002 in which property was condemned or threatened so that it could be turned over to a private party such as a developer.)

In a scathing dissent, Justice Sandra Day O'Connor retorted that transferring land from one private party to another to generate more tax revenue was unconstitutional. "Who among us can say she already makes the most productive or attractive possible use of her property?" O'Connor wrote. "The specter of condemnation hangs over all property. Nothing is to prevent the State from replacing any Motel 6 with a Ritz-Carlton, any home with a shopping mall or any farm with a factory."

Kelo was at work when the verdict was announced. She was stunned: "I just couldn't believe that the court was going to do that to us and essentially to every American."

In the end, however, Kelo's fight--and the public outcry she helped to raise--will probably make your home safer. Connecticut is among the 38 states that, in the wake of the Supreme Court ruling, have passed or are considering laws that would ban the use of eminent domain for private development. A similar bill that would apply a federal ban has passed the House, and President Bush has voiced his support for such reform.

But new legislation probably couldn't be applied retroactively to save Kelo's home. The only reason she and Tim LeBlanc, her husband of three years, are still living in their house overlooking the Thames River is that the outrage over the decision has kept the bulldozers at bay. The couple are playing a waiting game with the city, unable to count on staying but unwilling to think about a future anywhere else. And Kelo is left wondering whether the end result of their fight, whatever it may be, will send their finances into a tailspin.

The fight against eminent domain has never really been about money for Kelo, though. She told Arlen Specter at the hearing, "There are some things that you can't put a price on, sir." Still, the town of New London has done just that, offering Kelo more than twice what she paid for her house when she purchased it in 1997. "Financially, I make out best if I leave," she says bluntly.

For Kelo, the issue is more basic than dollars and cents: She loves her home and wants to stay in it. She put time, sweat and money into fixing up the two-bedroom 1893 cottage, "creating the kind of home I always dreamed of." She painted it pink, her favorite color. LeBlanc, a retired merchant marine whom she met after she bought the house, helped renovate it. Kelo planted flowers, braided new rugs and filled the rooms with antiques. "Today," says Kelo, "it is beautiful."

But the surrounding neighborhood was not. A hodgepodge of small businesses, rental apartments and homes (some abandoned or falling apart; others, like Kelo's, in pristine shape), Fort Trumbull appeared to local officials to be the right place to build a development to complement the gleaming $300 million facility that pharmaceutical giant Pfizer had built nearby. They planned to make deals with each property owner in the neighborhood to acquire their land, and realtors started making offers in 1998.

When they came knocking at her door, Kelo, in her tough, down-on-the-docks New England accent, told them to get lost. She spoke vehemently against the plan at hearings, the beginning of her learn-as-you-go grass-roots fight. "I never did anything like this before," she says. "I was a member of Mothers Against Drunk Driving, but that was it."

Most other residents took the deal, and the city snapped up house after house in 1998 and 1999. "Some people weighed their options and left," Kelo says. "There are no hard feelings. I just feel bad for the people who didn't stay and fight, because they'd still be here."

Undeterred by Kelo's refusal, the city pressed forward, conducting a drive-by appraisal of her property. In 1998 they offered her $79,000, which they said was fair market value. That was nearly 50% more than the $53,000 she'd paid just three years before. Two years later, they upped the price to $123,000. Kelo again said no. "I live here because I choose to live here, not because I can't afford to live somewhere else," she says.

ON THE DAY BEFORE Thanksgiving five years ago, Kelo found a notice on her door: The city had condemned her house at 8 East Street. It stood on what would now officially be known as Parcel 4A. A few weeks later, the street signs in Fort Trumbull were removed. "It was like stripping you of your identity, you know?" she says. "You don't live on East Street anymore. You live on Parcel 4A."

Bulldozers arrived and turned the surrounding houses into pebbles and splinters. "When they did that," Kelo says, her voice shaking with remembered rage, "there is no way to describe it. We were screaming at the bulldozers not to tear down those houses." By 2000 most of the buildings had been razed. Kelo's pink house stood out like a rose in a wheat field.

Soon after, improvements began to transform Fort Trumbull. The state spent $20 million on a new park across from Kelo's house, and the town fixed environmental problems, including soil contamination and a dangerous flood plain.

To protect her pink palace from the developers, Kelo, joined by a few others, filed suit against the city. They hired a local lawyer, Scott Sawyer, but the case quickly became too big and expensive for them to handle on their own. The Institute for Justice took on the case pro bono in late 2000. With lawyers who aspired to make the New London battle a national platform for challenging eminent domain, the families felt they had a fighting chance.

Kelo, the lead plaintiff in the case, became a dynamic advocate for the cause. She talked on the phone until she was hoarse. She photocopied hundreds of fliers advertising public hearings. She made new friends of people who cheered her on. She wrote press releases and letters to the editor and strategized with her lawyers at the Bulkeley House Pub, down on Bank Street. Fortunately, the fight didn't cost Kelo much money: Most expenses, like photocopies and gas for her trips to public hearings, were incidental. When she had to attend a hearing or a meeting on days she was scheduled to work, she switched shifts.

Throughout the fight, she grew close to the other homeowners in the lawsuit and to her supporters, hugging them when prospects looked good and crying when they didn't. And she became the one people always asked what they should do next.

One night in 2002, Kelo was working in the emergency room when a trauma call came through. Everyone on duty rushed over to the man on a stretcher, who had been in a car crash. Susette was stunned when she looked down at the man's face. It was Tim.

He would walk out of the hospital two months later but was permanently disabled by the accident. As soon as he was well enough, they were married. It was the second marriage for Kelo, who has five grown sons from her first union. (As she has done with other media outlets, Kelo asked that her husband not appear in photographs.)

Since the accident, LeBlanc has been unable to work. Between Kelo's salary as a nurse and his Social Security disability, their annual income is about $84,000. They have hardly any cash savings and only about $80,000 set aside for retirement. But day to day, they're comfortable.

If they do decide to acquiesce to the developers, Kelo and LeBlanc will collect $123,000 from the city, the appraised value of the East Street house. But they could also be forced to pay an estimated $57,000 in use-and-occupancy fees that the city is charging them--essentially back rent dating to 2000, when the house became the city's property. Fortunately, the couple have a fallback of sorts: Last year they bought an investment property in Old Lyme, a coastal town nearby, for $145,000. It was a fixer-upper, and they've racked up a $12,000 credit-card balance renovating it. Kelo bristles at mention of the debt and points out that it'll be erased as soon as they sell the house. She plans to list it at $275,000.

By the time the Supreme Court agreed in September 2004 to hear Kelo v. City of New London, Kelo and LeBlanc had been living for four years in an odd landscape of weeds and crumbled concrete, ringed by fresh asphalt and kelly-green sod, improvements made in anticipation of the yet-to-be-built condos.

When the court's decision was announced last June, that ought to have been the end of it. But six months after the verdict, the fate of the house formerly known as 8 East Street is still unknown. Gov. M. Jodi Rell of Connecticut, who lauded Kelo's fight as the "21st-century equivalent of the Boston Tea Party," has urged the city to resume negotiations with Kelo and the other holdouts. One option would be to incorporate her house into the revitalization plan, a scenario Kelo could live with. "We were never against development," she says.

But while work has stopped--at least temporarily--the New London Development Corporation, the city's agent, isn't budging publicly from the original concept. "The plan calls for the structure to be gone, and in as human a way as possible, we're trying to implement the plan," says Dave Goebel, former chief operating officer.

Kelo, though, remains steadfast in her conviction that she won't lose her home in the end. "I'm still here, aren't I?" she says. But until there is a resolution, Kelo and LeBlanc are in limbo, financially and emotionally. Their hearts tell them to count on staying. But if the worst happens, they don't want to be stuck without a plan. Or a home.

The Advice

To help Kelo and LeBlanc prepare for every possible outcome, planner Mark Ferris, with Yankee Cents Financial Services in nearby Old Saybrook, Conn., sat down with the couple to review their finances. Here are his recommendations.

• HEDGE YOUR BETS Kelo and LeBlanc never intended to live in the house in Old Lyme. "I hope to sell it within the next few months," she says. "That's retirement." In the meantime, it's a handy backup to have if the city goes through with its threat to take their New London home. And if the couple do end up selling the property, the proceeds can be used either to pay off the $57,000 in back rent the city is charging them (if they get to stay) or to buy another home (if they're forced to leave). Kelo firmly rejects the latter outcome. But until the future of the home on East Street is clear, Ferris suggests they keep their options open by parking any money they make from a sale in a safe, liquid account.

• PLAN FOR THE WORST Ferris urges the couple to build cash reserves equal to six months of their living expenses, or at least $10,000, which they should keep in an online savings vehicle such as an Orange Savings Account from ING Direct. "Having an account separate from your regular bank makes it less tempting to raid the piggy bank, without giving up easy access if you need it," he says.

A good emergency plan also includes a will and adequate life insurance, neither of which Kelo and LeBlanc have. "A will is especially important because Tim is on total disability," says Ferris. "Who would manage things if, heaven forbid, something should happen to Susette?" Ferris also recommends buying a 15-year, $500,000 term policy to supplement Kelo's group coverage at work.

• INVEST SMARTER Besides the Old Lyme property, all of Kelo and LeBlanc's retirement savings are in stocks. "Their asset allocation seems haphazard," says Ferris. "Susette and Tim need to think about their risk tolerance and their time horizon for retirement and reallocate their portfolio accordingly," says Ferris. He suggests shifting 35% of their savings into fixed-income investments and another 5% into cash. He also urges Kelo to contribute a percentage of her salary, rather than a fixed dollar amount, to her 403(b) plan at work, so her savings will increase with any pay raises she gets.

It's a lot to think about, particularly for a couple who had looked forward to spending many quiet years in their house on the water. But Kelo is willing to do anything she can to add stability to what lately has been a very unpredictable life.

After meeting with Ferris, she stands on her deck and looks out at the new state park, the river, the towering Pfizer plant. On a patio table, a stack of fliers for the next hearing sits in a box, with a rock on top--actually, a jagged shard of foundation from the house that used to be next door--to keep them from sailing off in the breeze. As if to explain why she is still standing on this porch after all the years of fighting, she squints in the noon sun, waves a hand at the view and says, "I would never get this anywhere else." And then she goes back inside her house.

The Bottom Line

Selling their second home will help boost Kelo and LeBlanc's retirement savings. Next up: building their emergency fund.