Must the house be returned to the state that nationalized homes and properties, then compensated the owners with a paltry sum?

The state is not permitted to confiscate its citizens' properties except for a public interest and with suitable compensation; otherwise, it is usurpation. Whoever comes into possession of a house that was usurped must not benefit from it. Rather, they must return it to its original owner or their heirs. If this is not possible, they may benefit from it out of necessity, provided they donate its rent on behalf of its owner. If the house was seized from its owner without compensation, you must return it. However, if its owner was compensated and the state transferred it to you, then there is no harm in benefiting from it. It is advisable to consult the scholars of the land or the Sharia judiciary regarding this matter.