Unanimous Supreme Court rules county cannot steal equity in homes after sale for tax debt

The U.S. Supreme Court does not unanimously agree very often, but all nine justices ruled in favor of a 94-year-old widow last week in a case involving Hennepin County, Minn., which sold her home over a small tax debt and then kept the rest.

The saga begins in 1999 when Geralidein Tyler purchased a condominium in Minneapolis. However, in 2010, due to various factors, she made the decision to move into a retirement community. The financial burden of managing mortgage payments, condo fees, and rent for her retirement apartment led to Tyler falling behind on her property taxes, Red State reported this week.

By 2015, her outstanding tax debt had accumulated to $2,300, with additional interest and penalties imposed by the county, resulting in a total amount of $15,000. As a consequence, the county seized Tyler’s property title and sold it at a tax auction, fetching $40,000.

The county used $15,000 from the sale proceeds to offset Tyler’s debt but then kept the remaining funds. Officials’ rationale was that since the county had confiscated her property title, she no longer possessed ownership rights and was not entitled to any compensation. Consequently, Tyler was left responsible for a $50,000 mortgage and $12,000 in condo fees.

It should be noted that Tyler’s case is not at all unique; Red State reports that a dozen states allow city and county governments to confiscate property and homes, sell them to settle existing debts, and then keep the remaining balance in what amounts to outright equity theft.

What’s more, it’s a bipartisan problem; both red and blue states allow it.

Tyler filed a lawsuit, presenting two claims. Firstly, she argued that the county’s retention of the surplus funds exceeding the back taxes and fees amounted to a violation of the Fifth Amendment’s prohibition against uncompensated takings. Additionally, Tyler contended that the substantial increase of her $2,300 delinquent tax bill to $15,000 through fines and fees violated the Eighth Amendment’s prohibition on “excessive fines.”

However, the district court dismissed the case, stating that Tyler lacked a legal basis to claim the proceeds under Minnesota law and lacked grounds to challenge the fines and fees.

She appealed her case to the 8th Circuit Court of Appeals, and it was quickly rejected. Next stop was the U.S. Supreme Court, which agreed to take the case. The result: A 9-0 ruling in her favor.

SCOTUSBlog noted further:

Writing for a unanimous court, Chief Justice John Roberts began by addressing – and rejecting – the county’s argument that Tyler lacked a legal right, known as standing, to bring her takings claim at all. The county contended that Tyler was not actually harmed by the sale of her condo because she may have also had a mortgage for $49,000 on the property, as well as a $12,000 lien for unpaid homeowners’ association fees.

The justices dismissed the county’s protests as speculation, noting that the county had never actually provided evidence of either the mortgage or the lien. But in any event, Roberts continued, “Tyler still plausibly alleges a financial harm: The County has kept $25,000 that belongs to her.” If she had received that money, Roberts wrote, Tyler could have used it to pay down some of the debts linked to the condo.

The high court did not rule specifically on the “excessive fines” aspect, but a concurring opinion written by Justice Neil Gorsuch indicated that Hennepin County would not have done well in that area, either:

The Court reverses the Eighth Circuit’s dismissal of Geraldine Tyler’s suit and holds that she has plausibly alleged a violation of the Fifth Amendment’s Takings Clause. I agree. Given its Takings Clause holding, the Court understandably declines to pass on the question whether the Eighth Circuit committed a further error when it dismissed Ms. Tyler’s claim under the Eighth Amendment’s Excessive Fines Clause. Ante, at 14. But even a cursory review of the District Court’s excessive-fines analysis—which the Eighth Circuit adopted as “well-reasoned,” 26 F. 4th 789, 794(2022)—reveals that it too contains mistakes future lower courts should not be quick to emulate.

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.

Fortunately, the Supreme Court has been moving in the same direction regarding civil asset forfeiture, another form of ‘legal’ theft by government.

Sources include:

RedState.com

SCOTUSBlog.com