Retiree Geraldine Tyler has spent almost 13 years fighting the government after falling behind on her property taxes. And now the Minnesota resident will have her day in the U.S. Supreme Court, a decision that will impact the Bill of Rights and how home equity and delinquent property taxes are handled nationwide.
“Home equity is property protected by the Constitution,” Christina Martin, senior attorney at the Pacific Legal Foundation, which is representing Tyler told Forbes. “When the government takes more than it is owed in taxes, that’s home equity theft. We are thrilled the Supreme Court will hear this case, which we hope will end unconstitutional home equity theft across the country.”
In 2010, Tyler decided to move out of her Minneapolis condo after incidents such as a shooting made her feel unsafe. Relocating to a new apartment in a different neighborhood helped Tyler feel safe, but she could not afford to pay her rent and the property taxes on her condominium. As a result, the property accrued $2,300 in delinquent taxes. And by 2015, Tyler accrued $12,700 in penalties, interest and other fees. Hennepin County seized and foreclosed on Tyler’s property, keeping the profit.
Tyler decided to sue Hennepin County. She wasn’t disputing the county’s decision to seize or foreclose on her property, but rather contesting the county’s ability to keep the balance of her property. The federal district court and the Eighth U.S. Circuit Court of Appeals have ruled in the county’s favor, arguing that Tyler did not have “property interest in surplus equity” after selling her home.
“We agree that the government can seize the property to collect a debt,” Martin told Reason.com. “What it can’t do is take more than it’s owed.”
Seizing Property and Keeping Equity Is Not An Uncommon Practice
While local governments in many states seize properties with delinquent taxes, they also use the proceeds to pay off the debt and return the balance to the owner. However, in Minnesota and 11 other states, keeping all the proceeds derived from a delinquent tax sale is legal.
The practice of home equity theft, where local governments seize properties to satisfy delinquent tax bills but also keep the profit, reportedly is allowed in at least 12 states to include Oregon, Arizona, Colorado, Nebraska, South Dakota, Minnesota, Illinois, Alabama, New Jersey, New York, Massachusetts and Maine.
In states such as Nebraska, property owners falling behind on their taxes are typically bought out by private investors who offer no correspondence.
According to Forbes, local governments and private investors have seized 7,900 homes throughout the United States. As a result, homeowners have lost 86 percent of their equity — the equivalent of 26 years of payments on a 30-year mortgage. It is estimated this loss results in $777 million of their life savings for property owners.
Debating The Practice of Home Equity Theft
When Tyler’s case is heard in the U.S. Supreme Court, attorneys will argue the Takings Clause of the Fifth Amendment to the U.S. Constitution that states, “Nor shall private property be taken for public use without just compensation.”
Yet Tyler is not alone. Advocates from the National Taxpayers Union Foundation, the Howard Jarvis Taxpayers Association, AARP and AARP Foundation, the Buckeye Institute and Cato Institute all have supported Tyler’s fight.
“We’re not asking for anything unusual here,” said Martin, who will be arguing the case in front of the high court. “We’re asking that the government not [receive] self-dealing, preferential treatment that allows them to just take a massive windfall, usually at the expense of the most vulnerable people.”
