A 94-year old grandmother will have her day in court today. Geraldine Tyler, a retired county worker at the age of 70, purchased her own apartment in 1999. It was a modest one-bedroom condo in Minneapolis, Minnesota, close to a park and public transportation. She resided there for ten years, paying her property taxes faithfully, until she hurriedly relocated across town to a senior community in a more secure area due to concerns about increased crime and an incident involving a neighbor.
Although the decision was bad for her wallet, it was fantastic for her peace of mind. She struggled to pay the payments for both residences, and by 2015, she had about $13,000 in unpaid interest, fees, and penalties in addition to $2,311 in unpaid property taxes on the condo. Tyler’s condo was eventually seized by Hennepin County and sold for $40,000 later. However, the county kept the entire $40,000 instead than returning Geraldine the $25,000 sale surplus and keeping the $15,000 it was promised.
In Minnesota, that is all legal—at least right now. Local governments in Minnesota take what is known as absolute title when it comes to collecting property taxes and some other government debts, which means they can keep all earnings from a sale, regardless of how much the windfall exceeds the amount they’re owing.
Tyler’s attorneys will make their case before the US Supreme Court today that this practice is unconstitutional. Currently 94 years old and residing in an assisted living facility, the grandmother of four would end a practice that has hurt thousands of other homeowners, many of them elderly, across the nation if she were to win.
From 2014 to 2020, more than 4,300 properties were confiscated and sold in Minnesota alone. More than 1,200 of them were family residences, so they weren’t unoccupied or regarded as businesses. These families lost their homes due to debts that represented an average of 8% of the value of their residences. Or, to put it another way, homeowners whose homes were taken lost 92% of their home’s worth, or $207,000, in excess of the outstanding tax obligation, which was only on average $17,000. The Pacific Legal Foundation, a nonprofit legal group, claims that all of above is true. The foundation’s goal is to protect Americans’ rights “when threatened by government overreach and abuse.”It is assisting Tyler pro gratis (for no charge).
The Minnesota practice is described by PLF as “an egregious violation of fundamental property rights.” However, the state is not alone. 12 states and the District of Columbia, according to PLF, permit the government to seize your property due to unpaid taxes, fines for breaking the law, or obligations to government organizations, sell it, and then leave you with nothing. PLF refers to this type of taking as “home equity theft” and nine other states permit it in specific circumstances.
Hennepin County suggests that property owners who lose their homes do so freely in their rebuttal brief submitted to the Supreme Court. According to the county, “Tyler chose not to pay property tax.” Additionally, the county recommended that Tyler may have refinanced her mortgage, sold her property, or enrolled in a tax payment plan. But according to them, Tyler refused, demanding that “the State serve as her real estate agent, sell the property on her behalf, and [if she wins her case] write a check for the difference between the tax debt and the fair market value.” They further contend that Tyler wouldn’t have any equity in the home because it was subject to other liens.
While it may be simple to point the finger at tax defaulters for dodging their responsibilities, these expansive state laws can have disastrous repercussions for homeowners who fall behind on their taxes for unjustifiable reasons. That goes for a lot of older property owners like Tyler who might leave their homes for medical reasons or for other reasons without fully realizing what might happen, as well as those who are struggling to make ends meet. Homeowners who have cognitive impairment, physical or mental disease that has put them in financial hardship, or who are simply impoverished, are at risk of losing far more than they owe under these plans.
The American Association of Retired Persons (AARP), the AARP Foundation, and the National Consumer Law Center (NCLC) urged the Court to take into account the “human cost of such laws for the nation’s older homeowners in particular” in an amici curiae (literally, “friends of the court”) brief filed in support of Tyler. They contend that older homeowners with little resources are most likely to face property tax foreclosure, frequently due to circumstances beyond their control. Since their only significant financial asset is their equity, many people struggle to navigate the complex financial waters of tax sales while living on low fixed incomes, facing steadily rising food, utility, and medical costs, having physical ailments, and being unable to afford access to professional financial advice. Furthermore, unlike younger homeowners, many elderly homeowners are no longer able to return to the workforce in an effort to make up the lost income or become eligible for alternative financing. These issues make it more likely for elderly homeowners to be sued for back taxes and more challenging for them to defend themselves and avoid foreclosure. The amici write that taking their home equity “is nothing short of catastrophic.”
Tyler has been engaged in her own legal battle for many years. Tyler served as the lead plaintiff in a putative class action lawsuit against Hennepin County that was filed in 2019 by the St. Paul legal firm Reinhardt Wendorf & Blanchield (which is still participating in the case). A federal judge dismissed it, noting the very presumption she now claims is incorrect—that forfeiture eliminates a property owner’s interest in their property. The Eight Circuit upheld the dismissal on appeal. However, the Supreme Court decided to hear Tyler’s case in January of this year.
It’s critical to realize that Tyler is not asserting that she paid the tax. She claims that the county shouldn’t have been permitted to enrich itself at her expense—in excess of what she actually owed. Her attorneys point out that it has already been determined that the government may legitimately seize property in order to recoup a debt. However, they contend that when it takes more than it is due, it is in violation of both the Takings Clause and the Excessive Fines Clause. The government cannot take property, including home equity, without providing just compensation, according to the Fifth Amendment of the Constitution. The disparity between the sum owed and the value of the property could be characterized as a punitive fine, which is prohibited by the Eighth Amendment.
Tyler’s attorneys contend that in accordance with the Eighth Circuit’s logic, even a tiny debt—underpayment of a few dollars—would give the government the right to the full worth of a debtor’s property. In their petition for certiorari to the Supreme Court, they said that this position “flouts historical tradition, the fairness and justice embodied by the Just Compensation Clause, and principles established by this Court.”
True, Minnesota has engaged in this technique for almost a century. However, according to Tyler’s attorneys, the fundamental idea that ought to safeguard Tyler really dates back to 1215 and the Magna Carta, which placed restrictions on the amount of property that could be seized to pay off debts. More recently, in 1855, in Murray’s Lessee v. Hoboken Land & Improvement Co., the Supreme Court itself determined that while the government may confiscate property to collect a tax, it goes beyond its legal authority to collect the debt when it takes more than is owed.
A few years later, in Baker v. Kelley, 11 Minn. 480, 488, 499 (1866), the Minnesota Supreme Court provided an answer, stating that “if the Legislature by this section attempted to do more than confer on the State the power to take such further steps as were necessary in the collection of the delinquent taxes, or in the perfection of tax titles, then it overstepped the limits which the constitution has fixed to its authority.”
Tyler’s attorneys contend that Minnesota’s tax forfeiture scheme goes beyond such compensation, taking all of a tax-delinquent property from its owner—which in many cases, including Tyler’s, is substantially more than is needed to satisfy the debt owed. Later, courts ruled that laws passed by the legislature beginning in the 20th century intended to replace that logic, arguing, for example, that keeping the overage was a way to “compensate the government for lost revenues.” For better or worse, it resembles punishment more.
Recent examples around the nation demonstrate that not only municipal governments have benefited from homeowners’ problems. However, abandoned homeowners have also achieved some success.
For instance, Tallage Lincoln, LLC, a private investment firm that specialized in purchasing property tax liens, took possession of the house of a Massachusetts family in 2019. Along with Mark’s wife, his crippled stepdaughter, and two of his grandsons, one of whom has juvenile diabetes, the brothers Neil and Mark Mucciaccio had resided in their childhood home. When they struggled to pay their taxes because of medical expenses, the Town of Easton, where the house was located, sold the tax liens to Tallage. The Mucciaccios owing $30,000 in taxes, interest, and expenses, but Tallage was entitled to all of the home’s $276,500 equity under Massachusetts law. The Mucciaccios, who were represented by PLF, sued Tallage and Easton to overturn the state’s legal framework; Tallage later agreed that the family may settle the debt and regain ownership of the property.
Benjamin Coleman, a 76-year-old veteran with severe dementia, lost his $200,000 home in the District of Columbia due to a $133.88 tax payment. His tax bill increased to $317.35 after the added penalty and was sold to Embassy Tax Services, LLC at a public auction. The additional $4,999 was added by Embassy as “court costs, attorney’s fees, expenses incurred for personal service of process, expenses incurred for service of process by publication, and fees for the title search.” When Coleman’s son understood what had transpired, he sought to work out a payment plan and sent court papers describing his father’s illness. Coleman and his son failed to show up for court procedures, so Embassy asserted full ownership of the home and evicted the retired Marine sergeant. The District of Columbia tried to have the case dismissed, but Coleman’s conservator, Robert Bunn, who was chosen by the court to manage Coleman’s affairs, took the matter to court. The judge rejected this, noting that common law can create a property interest in the surplus created by a tax-foreclosure sale. To put it another way, the court disagreed with the District’s assertion that “winner takes all,” concluding that even if a homeowner lost a property in a tax-related foreclosure or sale, the homeowner still had certain rights to equity in the property.
Similar conflict in Michigan resulted in a bigger victory for homeowners. Uri Rafaeli lost his possession in his 80s after making a $8.41 payment error. He ultimately owing $285.81 after interest, fees, and penalties. His belongings were taken by Oakland County, which then made about $25,000 on the auction sale. Although the proceeds greatly outweighed the debt, the court first determined that Rafaeli lost his interest in the property as a result of the General Property Tax Act and had no property interest in the proceeds. However, in 2020, the Michigan Supreme Court overturned the lower court, concluding that property owners are entitled to the value of the surplus revenues as reasonable compensation and that “The remedy for a government taking is just compensation for the value of the property taken.” As a result, the Michigan law was struck down.
The fact remains, nevertheless, that state and municipal governments have financial reasons not to alter their ways of doing things until they are compelled to. To fill budget gaps, many local governments rely on these revenues. According to PLF, while Minnesota, Maine, and Oregon towns routinely seize properties and keep the surpluses for the government’s benefit, Detroit has a budget line for the anticipated windfalls from home foreclosures. Even if money is typically returned, there may be motivations to make an exception. For example, in Ohio and California, the law allows for the confiscation of all money if it will help the public good or economic resurgence.
There have historically been few restrictions on what can be done with the revenues in some states. Before the Michigan Supreme Court ruled in favor of the homeowners, several local authorities had offered discounted property auctions to their relatives and connected businesses. Before the practice was outlawed in Montana in 2019, county treasurers would sell repossessed homes to preferred private investors for pennies on the dollar; today, by law, properties in tax sales must be sold to the highest bidder. States including Nebraska, Oregon, and Arizona lack such protections.
According to Tyler’s attorneys, these statutes and the methods for enforcing them have led to “a pressing national problem that has festered for decades in the lower courts.” They claim that her case is a fantastic platform for addressing them nationally.
The final Supreme Court case in this term will be addressed during oral arguments on April 26, 2023. A conclusion is anticipated in June 2023.
Geraldine Tyler, Petitioner, v. Hennepin County, Minnesota, et al., is the name of the case.