The Supreme Court unanimously ruled that a Minnesota county wronged a grandmother when it forced the sale of her condominium over an unpaid tax debt and kept the sale proceeds that far exceeded the tax she owed.
Critics call such a practice “home equity theft.”
The case came after Pacific Legal Foundation (PLF) released a report late last year saying that 12 states and the District of Columbia allow local governments and private investors to seize dramatically more than what is owed from homeowners who fall behind on property tax payments.
Chief Justice John Roberts wrote the court’s opinion (pdf) in Tyler v. Hennepin County, Minnesota, court file 22-166, which was issued on May 25.
“The taxpayer must render unto Caesar what is Caesar’s, but no more,” Roberts wrote for the court.
Attorney Christina Martin of PLF, who represents dispossessed homeowner Geraldine Tyler, 94, told the court during oral arguments on April 26 that local governments should not be allowed to take the full value of a home as payment for much smaller property tax debts. PLF is a national not-for-profit public interest law firm that challenges government abuses.
Minnesota law allows counties to retain windfalls at the expense of property owners, and from 2014 to 2020, about 1,200 Minnesota residents lost their homes, along with the equity they held, for debts that averaged 8 percent of the home’s value, according to PLF.
Tyler owned a modest one-bedroom condominium in Hennepin County, but after she was harassed and frightened near her home, she moved to a new apartment in a safer neighborhood. The rent on her new apartment stretched her resources and she fell into arrears on her condo’s property tax bills, accumulating about $2,300 in taxes owed, along with $12,700 in penalties, interest, and costs.
The county seized Tyler’s condo, valued at $93,000, and sold it for just $40,000. Instead of keeping the $15,000 it was owed, the county retained the full $40,000, amounting to a windfall of $25,000, according to PLF.
Tyler sued, arguing that the government violated the Takings Clause of the Fifth Amendment by seizing property in excess of the debt. Her lawsuit was rejected by the courts, including the U.S. Court of Appeals for the 8th Circuit, which found that the legal forfeiture of the property extinguished the owner’s property interest.
But the county went too far in keeping the windfall, the Supreme Court held in its new ruling.
The principle that a government is not allowed to take from a taxpayer more than she owes is based in English law and goes back at least as far as the Magna Carta of 1215. And Supreme Court precedents have long recognized that a taxpayer is entitled to the surplus in excess of the debt owed, the court stated.
“The Takings Clause ‘was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole,’” Roberts wrote.
“A taxpayer who loses her $40,000 house to the State to fulfill a $15,000 tax debt has made a far greater contribution to the public fisc than she owed.”
Minnesota law “recognizes in many other contexts that a property owner is entitled to the surplus in excess of her debt.”
“[I]f a bank forecloses on a home because the homeowner fails to pay the mortgage, the homeowner is entitled to the surplus from the sale.”
In collecting all other taxes, “Minnesota protects the taxpayer’s right to surplus.” So if a taxpayer falls behind on income tax and the state confiscates and sells the property, state law provides that any surplus must be returned to the owner. The same rule is followed regarding arrears of personal property tax—such as for a car—and real property tax.
In Tyler’s case, the “State now makes an exception only for itself, and only for taxes on real property. But ‘property rights cannot be so easily manipulated,’” Roberts wrote, citing Cedar Point Nursery v. Hassid, a 2021 Supreme Court decision that pitted the property rights of an employer against labor organizing rights.
“Minnesota may not extinguish a property interest that it recognizes everywhere else to avoid paying just compensation when it is the one doing the taking,” Roberts wrote.
Tyler’s attorneys had also argued that Minnesota ran afoul of the Excessive Fines Clause of the Eighth Amendment of the Constitution but because the court accepted her side’s Fifth Amendment argument, “we need not decide whether she has also alleged an excessive fine under the Eighth Amendment,” the chief justice wrote.
PLF’s Martin praised the new court ruling.
“Today’s decision is a major victory for property rights in the United States,” the attorney said.
“This decision affirms that property rights are fundamental and don’t depend solely on state law. The Court’s ruling makes clear that home equity theft is not only unjust, but unconstitutional.”
Justice Neil Gorsuch filed a concurring opinion, which Justice Ketanji Brown Jackson joined.
Gorsuch wrote that he agreed with the majority opinion but said what was done to Tyler may also constitute an economic penalty and therefore violate the Excessive Fines Clause.
“Economic penalties imposed to deter willful noncompliance with the law are fines by any other name. And the Constitution has something to say about them: They cannot be excessive,” Gorsuch wrote.
The ruling in Tyler v. Hennepin County may have an impact on other home equity theft cases pending before the Supreme Court and in other courts across the country.
Dan Rogan, Hennepin County’s assistant administrator and auditor, commented on the Supreme Court opinion.
“Hennepin County represented the interests of Minnesota and many other states with laws that transfer title of abandoned property to reduce the burden to the public. Counties in Minnesota have faithfully administered the state’s property forfeiture laws for well over a century.
“Based on today’s decision which found Minnesota’s law unconstitutional, Minnesota’s property tax forfeiture laws must be revised. Hennepin County will work closely with the Minnesota Legislature to create a process that is consistent with the Supreme Court’s decision,” Rogan told The Epoch Times by email.
This article by Matthew Vadum appeared May 25, 2023, in The Epoch Times.
Photo: Hennepin County, Minnesota homeowner Geraldine Tyler in an undated photo. (Courtesy of Pacific Legal Foundation)