The federal government is seeking to take away the home of a California congressman, alleging the estate listed for $3.5 million was purchased with ill-gotten gains.

Notice of a lawsuit and the government’s interest in the property of Rep. Randy “Duke” Cunningham was filed with the county recorder’s office on July 21.

Cunningham, an eight-term Republican, has been dogged by an investigation into his financial dealings with longtime friend Mitchell Wade, the founder of defense firm MZM Inc.

In 2003, Cunningham sold a 3,826-square-foot house north of San Diego to Wade, who took a $700,000 loss when he resold it a year later. During that span, home prices in San Diego County rose an average of nearly 25 percent.

At the same time, MZM Inc. was increasing its federal contracting business. A federal grand jury is investigating, and the FBI has served searched warrants looking for documents.

Cunningham, whose term ends in 2007, said last month that he will not seek re-election.

His attorney, Lee Blalack, told the San Diego Union-Tribune that he had filed a motion challenging the U.S. government’s legal claim on Cunningham’s house in Rancho Santa Fe.

Blalack wants the notice to be expunged or the lawsuit to be unsealed. There was no public record of the lawsuit at the U.S. District Court in San Diego

The home, a five-bedroom, eight-bath Spanish colonial estate on Via Del Charro was listed for sale this week for $3.5 million. However, the government’s declaration that it has a claim on the property makes a sale difficult for the time being, local real estate agents said.

The house was purchased from Douglas Powanda, a former executive with Peregrine Systems, who is awaiting trial on fraud charges for his alleged role in an accounting fraud conspiracy.