A group of families will receive thousands of pounds in compensation after being "treated with contempt, delays and maladministration" by HS2.
The knit community in Flats Lane and Knox Grave, off the A5 near Tamworth, had asked to be relocated when it became clear the high speed rail line between London and Birmingham would go through their homes.
But, according to the Parliamentary and Health Service Ombudsman, the HS2 company failed to engage properly with the Staffordshire villagers over a two-year period, placing them under severe stress and worry, hugely impacting their home lives, jobs, careers and health.
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HS2 has apologised to the six families and will pay them damages worth £4,000 each, adding that it was confident of avoiding similar situation in future.
The Ombudsman's report says that families, having been told their homes were on the route, were urged to come up with proposals to relocate as a community.
Ombudsman Julie Mellor said: "This small, tight-knit community now faces separation due to a catalogue of errors by HS2.
"Despite HS2 encouraging those affected by the project to work with them to come up with solutions, these families were made to feel as though their proposal had simply disappeared into a black hole, leaving them with no option but to accept compensation for their homes and abandon any hope of them staying together as a community.
"The ordeal these families have endured highlights the dire consequences of public sector organisations getting it wrong and not communicating effectively with people."
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Residents' spokesman Jonathan Loescher said: "As a community, we are neither for or against HS2 as a project.
"We attempted to engage with HS2 in a positive and constructive way but for years we were treated with contempt, delays and maladministration, as the report shows.
"We loved where we lived and worked. We wanted to work with HS2 to try to explore the possibility of being able to continue to live within the immediate local area, save our businesses and give us the opportunity to maintain our existing lifestyles.
"Now, most of the community has left the area. Being subject to this ordeal for two years was exhausting, demoralising and made us lose all faith with the ability of HS2 to deal with us fairly."
The Ombudsman recommended that HS2 pay each of the six families between £750 and £4,000 in recognition of the failings identified in the investigation.
It has also recommended that HS2 conducted and published the results of an independent review into its engagement, communication and complaint handling, within six months and report the outcome of the implementation of the recommendations in that review.
HS2 chief executive Simon Kirby said: "HS2 takes the Ombudsman's report extremely seriously and offers a full apology to the residents for distress caused.
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"We will fully comply with the report's recommendations and make the payments to the residents concerned."
He said the case happened at a time of transition for the project and it had evolved significantly since them.
"I am confident we would avoid a similar situation developing in future," he added.
"However, it is also only fair and right to say that HS2 did not, does not and never will have powers to agree to one of the residents' key requests, namely that their entire community be relocated."
He added they had also published a resident's charter to guide consultation with those affected by the rail line to avoid future problems.