SCOTUS Delivers Private Property Rights Victory In Tyler v. Hennepin County

In 2015, a 94-year old grandmother named Geraldine Tyler found herself in a situation that many elderly Americans find themselves in – unable to pay their property taxes.

Geraldine had an initial tax bill of $2,300, but the government started imposing thousands of dollars in interest, fees, and other penalties. In the end, Geraldine’s property tax debt reached $15,000. When she couldn’t pay, Hennepin County, Minnesota, seized her condo and sold it at auction for $40,000. However, instead of keeping the $15,000 owed, and giving Geraldine the sale surplus, Hennepin County kept all $40,000, pocketing the $25,000 that should have gone back to Geraldine.

Geraldine sued Hennepin County claiming that by taking her property to recover an unpaid property tax debt, and refusing to compensate her for the difference between what was owed and what was taken, the government committed unconstitutional “home equity theft”. Geraldine argued that this action violated the Fifth Amendment Takings Clause.

SCOTUS holds that the government cannot keep surplus profits from tax foreclosures.

Luckily, the United States Supreme Court agreed with Geraldine Tyler. The Fifth Amendment Takings Clause says that when government takes private property for public use, it must pay the property owners just compensation. The Court ultimately determined that when Hennepin County took Geraldine’s home equity beyond the amount needed to satisfy her debt, it took her property. Therefore, Geraldine was entitled to just compensation.

According to the Court, “The County had the power to sell Tyler’s home to recover the unpaid property taxes. But it could not use the toehold of the tax debt to confiscate more property than was due. By doing so, it effected a ‘classic taking in which the government directly appropriates private property for its own use.’”

In the words of Chief Justice John Roberts, “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. The taxpayer must render unto Caesar what is Caesar’s, but no more.”

Elderly Oregonians are at greater risk of home equity theft.

Elderly homeowners of modest means are at a greater risk of property tax foreclosure than younger homeowners, often for reasons beyond their control. According to the AARP’s amicus brief in the case, many live on low-fixed incomes and disproportionately face the rising costs of food, utilities, and medical expenses. These challenges not only raise the risk of being sued for unpaid taxes, but also imperil their ability to defend themselves to resist foreclosure. For many of our seniors, seizure of their excess home equity is nothing short of catastrophic.

While most states protect homeowners’ “surplus equity” against foreclosure, at least a dozen states permit the seizure of homeowners’ entire equity to pay modest property tax debts. In Oregon, counties place tax liens on delinquent properties and may seek judicial foreclosure after three years of nonpayment. Owners have two years after foreclosure to redeem these properties. After the redemption period expires, the county may keep a property or sell it. Oregon law allows counties to retain any windfall profits. See ORS 312.005-312.990.

According to data compiled by the Pacific Legal Foundation, in Oregon:

• 75% of homes were forcibly seized for tax debts less than the price of a 10-year-old Ford F-150.
• On average, homeowners lost $237,000 in savings beyond the debt owed—or four years’ worth of income.
• Governments were able to keep $11 million more than what was owed to them.

Oregon local governments grapple with Hennepin decision.

Prior to Hennepin, Oregon law required local governments to follow a specific process when distributing proceeds from the sale of property seized because of unpaid local improvement assessments. In 2012, OPOA helped pass HB 4111, which required surplus proceeds from the sale of property seized because of unpaid local improvement assessments to be returned to the debtor or the debtor’s heirs or assigns after other costs and liens were satisfied. Unfortunately, this process did not apply to the foreclosure of property tax liens.

In the wake of Hennepin, we will likely see new legislation outlining a similar process for distributing surplus proceeds to property owners whose property is sold to repay unpaid property taxes. In the meantime, local governments will likely face a barrage of takings lawsuits filed by property owners who did not receive just compensation from the taking of their home equity.

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The opinions expressed in this post are those of the author and do not represent the opinions or positions of any party represented by the OPOA Legal Center on any particular matter.