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Homeowner heist? Supreme Court to decide limits of property seizures to satisfy tax debts

It sounds like a Big Brother nightmare: The home of a 94-year-old grandmother is seized by the state for unpaid taxes, and all the sale proceeds — far above what she actually owed — go to public coffers.

Now the U.S. Supreme Court will debate and decide a tricky property rights case involving a legal David vs. Goliath with nationwide implications for the power of the state to order homeowners to pay up or risk lose everything. Despite the seeming power imbalance, both sides have raised strong legal arguments that will not be easy to resolve on the merits.

Oral arguments are scheduled for Wednesday, the last case for the high court to be publicly debated this term.

At issue is whether the government violates the Fifth Amendment’s “Takings Clause” when it confiscates property worth more than the debt owed by the owner, constituting an “excessive” fine.

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Geraldine Tyler

The home of a 94-year-old grandmother, Geraldine Tyler, was seized by a Minnesota county for unpaid taxes. (Pacific Legal Foundation)

A Minnesota county seized nonagenarian Geraldine Tyler’s home as payment for approximately $15,000 in property taxes, penalties, interest and costs.

The home was then sold for $40,000. Under the state’s forfeiture laws, the county kept the surplus proceeds. Minnesota is one of 12 states and the District of Columbia that allows the practice.

Her lawyers call the state’s policy a “home equity theft scheme.”

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“It would mean a lot to me to win this case,” Tyler said through her legal team, “especially because it would help old folks like me.”

The state calls its action a “last resort” for someone who was given multiple chances over several years to settle her negligent accounts. Officials say the policy has broader public benefits.

“Forfeiture also returns delinquent properties to productive use and the tax rolls, stemming future government losses from unpaid taxes or more extensive remediation,” the state told the high court.

"for sale" sign

The condo was sold in November 2016 to a third party for about $40,000, although it had once been valued at $93,000. Under state law, Tyler was not entitled to receive $25,000 from the sale proceeds after satisfying a $15,000 debt.  (iStock)

Home is where the heartache is

Tyler owned a condominium in Hennepin County, Minnesota, which includes Minneapolis. Over time, she and her family became concerned with rising crime in the neighborhood, and after 11 years, the elderly woman began renting an apartment in a different part of town.

Property taxes on the now-vacant condo went unpaid from 2011-15. The initial bill was $2,300, but the interest and penalties accumulated quickly, bringing the total bill to about 5½ times that.

The state argues it tried repeatedly to allow Tyler to retain equity in the home.

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“An owner who does not pay faces no personal liability,” lawyers for the state told the Supreme Court. “Instead, the sole recourse is against the delinquent property — even when the property is worth less than the taxes.”

Minnesota, like most states, has a multi-year process that keeps control of the property with the owner during that time, and gives the owner a chance to settle delinquent taxes. One option for many is to sell the property and pay the taxes and any private liens, allowing the seller to keep any surplus.

The state says it also offers homeowners extended payment plans, financial counseling and limited tax deferrals for qualifying elderly residents.

property tax bill illustration

A 1956 Supreme Court precedent allows similar tax forfeiture laws, ruling “nothing in the Federal Constitution prevents” the government from retaining the surplus “where the record shows adequate steps were taken to notify the owners of the charges due and the foreclosure proceedings.” (iStock)

In 2015, after receiving multiple notices that her property would be seized, absolute title transferred to the state, with all debts and liens canceled. After that, officials said Tyler never tried to buy back her property for the price of her tax debt and recover any equity she may have had.

The condo was sold in November 2016 to a third party for about $40,000, although it had once been valued at $93,000. Under state law, Tyler was not entitled to receive $25,000 from the sale proceeds after satisfying the $15,000 debt. Instead, the county kept the whole amount.

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Tyler’s lawyers call this a “huge windfall” for the government, but the county claims, overall, “the costs of uncollected taxes and administering tax forfeiture laws exceed the revenues generated by sales of tax-forfeited parcels.”

“This is an egregious violation of fundamental property rights,” the Pacific Legal Foundation (PLF), a conservative public interest group representing Tyler pro bono, said. “Both the U.S. and Minnesota constitutions say the government cannot take private property without giving owners just compensation. Home equity — the portion of a home’s market value that belongs to the homeowner after all debts on the property are subtracted — is private property and therefore just as protected as a home or land.”

supreme court justices new session

The Supreme Court will debate and decide a tricky property rights case involving a legal David vs. Goliath with nationwide implications over the power of the state to order homeowners to pay up or risk losing everything. (Collection of the Supreme Court of the United States via Getty Images)

The arguments and the impact

State officials argue that after a five-year grace period, Tyler no longer had any equity to recover since her private and tax debt included a $48,750 mortgage and a $11,660 homeowner’s association lien.

“A long Anglo-American tradition confirms that states may treat an entire interest in land as forfeited for failure to comply with reasonable conditions on ownership — and specifically for failure to pay property taxes — after adequate notice and opportunity to comply,” state officials said.

Lower federal courts hearing the lawsuit agreed, ruling in favor of the government.

A 1956 Supreme Court precedent allows similar tax forfeiture laws, ruling “nothing in the Federal Constitution prevents” the government from retaining the surplus “where the record shows adequate steps were taken to notify the owners of the charges due and the foreclosure proceedings.”

In a similar dispute, the justices in 1982 concluded the “Court has never required the State to compensate the owner for the consequences of his own neglect.”

PLF says its research found American homeowners from 2014 to 2021 lost more than $860 million on more than 8,950 homes, above what they owed in tax debt. On average, the group says, homeowners lost 86% of their equity.

And groups across the ideological spectrum who are supporting Tyler, like the ACLU and the Cato Institute, say poor and elderly Americans in particular are at risk of losing their homes.

The AARP in an amicus brief with the high court noted “those laws’ devastating impact on the financial security of lower-income homeowners, including, in particular, older adults who depend most heavily on this equity for their economic survival.”

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As for Geraldine Tyler, she now lives at a senior living community, where her relatives say she enjoys playing bingo. The elderly plaintiff has refused all media requests and expresses amazement her case has attracted so much attention.

If she wins before the Supreme Court? Her lawyers say she may want to use any recovered money to buy a new mattress.

The case is Tyler v. Hennepin County (21-166). A ruling is expected in late June.

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