Ending a four-year lawsuit that critics said put a spotlight on one of the nation's most egregious examples of law enforcement overreach, Philadelphia officials on Tuesday pledged to reform the city's civil forfeiture program, which had been used to seize thousands of homes and vehicles and millions of dollars in cash from criminal suspects — and in some cases from people never charged with a crime.

Under a proposed settlement, officials agreed to pay out $3 million to people who had property unfairly seized or never returned, and institute a raft of changes, including placing limits on the seizure of cash and property, and increasing judicial supervision of future seizures.

The deal, outlined in federal court filings and requiring a judge's approval, would end a 2014 suit targeting a program critics described as a draconian initiative permitting police and prosecutors to sometimes profit off innocent residents and property owners.

"For too long, Philadelphia treated its citizens like ATMs, ensnaring thousands of people in a system designed to strip people of their property and their rights," Darpana Sheth, a senior attorney at the Arlington, Va.-based Institute for Justice, which filed the lawsuit, said in a statement. "No more. Today's groundbreaking agreement will end years of abuse and create a fund to compensate innocent owners."

District Attorney Larry Krasner, who was sworn into office in January, ran on a platform opposing civil forfeiture and had been critical of the program's legacy. He said he was pleased with the impending changes.

"This is indeed a good day for the city of Philadelphia, because we have turned away from something that was unjust and inappropriate that went on in this city for too long," Krasner said at a news conference at City Hall.

Mayor Kenney added: "In short, this settlement makes Philadelphia a more just city."

The settlement would establish new rules to govern the civil forfeiture program moving forward, and to prevent cases like the 2014 example involving Christos Sourovelis. That year, police kicked the Greek immigrant and his wife out of their Somerton home and signaled their plans to seize it after the Sourovelises' son was arrested for selling $40 worth of drugs outside. The forfeiture action against the Sourovelis house was eventually dropped; the family was able to return after a few weeks but still had to endure a legal battle to keep their home.

Sourovelis praised the settlement Tuesday as "the right way to do it," saying: "A lot of people, they're not going to lose their house again."

Though often associated with narcotics investigations, forfeitures have been a prosecution tactic in many cases, against both suspects or those connected to them, in a bid to seize the proceeds from their crimes.

But city prosecutors in years past had earned national notoriety over the widespread nature of their seizures. Scott Bullock, president of Institute for Justice, called the program here "one of the worst civil forfeiture schemes in America."

Between 2002 and 2014, according to his firm, city law enforcement agencies seized about 1,200 homes, 3,500 vehicles, and more than $50 million in cash, the proceeds of which were often used to fund their own offices.

Sheth said that created a financial incentive to continue the seizures, and she and others criticized the system, characterizing it as heavily weighted toward the city and against citizens who tried to protect their property.

The settlement proposal would seek to remedy some of those issues.

Anyone who submits a claim would receive up to $90, court filings say, and those who forfeited property but were not convicted would receive up to 100 percent of the value of their loss. Defendants who had property seized for low-level offenses that qualified for diversionary programs would be reimbursed for up to 75 percent of what was seized.

It was not clear how many people might qualify for payments from the fund. Any leftover money, Sheth said, would be distributed to nonprofits in neighborhoods where civil forfeiture was used most frequently.

Moving forward, the agreement would prohibit city police or prosecutors from seizing property — such as houses or cars — in simple drug possession cases. And cash amounts under $1,000 could no longer be seized unless considered evidence for an arrest.

Additionally, the agreement calls for timelier hearings for defendants to challenge a seizure; more robust notification procedures for defendants; and earlier involvement by judges. Previously, prosecutors largely ran proceedings in the courtroom designated for forfeiture cases without a judge, jury, or even a court reporter to transcribe negotiations with the people whose property had been seized — many of whom did not have their own attorneys.

The agreement would also require the city to produce documents for at least a year demonstrating compliance with the agreement terms. Sheth said that future proceeds from any seizures would go toward drug treatment programs instead of law enforcement agencies.

Krasner said future use of forfeiture would almost always require a conviction beforehand, and that it would be targeted more specifically toward assets "used either as an instrument to carry out the crime, or it is the profit…of committing that crime."

Sheth said Krasner's administration had "certainly" been more open to negotiating agreement terms than his predecessors, many of whom defended the program during litigation.

Staff writer Jeremy Roebuck contributed to this article.