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Supreme Court sympathetic to homeowner in 'equity theft' dispute

The court is considering whether to allow local governments and sometimes private companies to keep profits when properties are seized for failure to pay taxes.
The Supreme Court.
The Supreme Court is hearing a case about whether a government's profit from the seizure of property for unpaid taxes violates the takings clause of the Fifth Amendment.Jabin Botsford / The Washington Post via Getty Images file

WASHINGTON — The Supreme Court seemed receptive Wednesday to a 94-year-old woman's claim that a Minnesota county violated the Constitution by keeping a $25,000 profit when it sold her home in a tax foreclosure sale.

Geraldine Tyler's home in Hennepin County, which includes the city of Minneapolis, was seized because she owed $15,000 in taxes and fees. But the county sold the home for $40,000 and kept all the proceeds, Tyler’s lawyers at the Pacific Legal Foundation say.

The conservative group, which often litigates property rights issues, calls the practice "home equity theft." It is asking the Supreme Court to end it. The court, which has a 6-3 conservative majority, is often sympathetic to property rights claims.

Based on Wednesday's arguments, the court at a minimum could conclude that Tyler can seek to revive her claim that such seizures violate the takings clause of the Constitution’s Fifth Amendment, which requires that the government pay compensation when property is taken.

Conservative Justice Neil Gorsuch wondered whether there are any limits to government power to seize property without handing back the surplus when someone is behind on taxes. He gave an example of a $1 million property on which the owner owes $5,000 in taxes.

Along similar lines, Chief Justice John Roberts said that if local governments had such power, "what's the point of the takings clause?"

"The Constitution seemed to have a different idea in mind," he said.

Conservative Justice Brett Kavanaugh said it seemed "very counterintuitive" to interpret the Constitution in a way that disfavors property rights.

Liberal Justice Ketanji Brown Jackson was among those who were skeptical that a ruling in favor of Tyler would have broad implications, questioning whether there would be a "real, big, practical problem."

The case is the last oral argument of the Supreme Court’s term, which runs from October to June. By the end of June, the justices will focus on issuing rulings in the cases they have heard arguments in. They include some potential blockbusters about affirmative action in college admissions, voting rights and religion.

The Pacific Legal Foundation said in a report last year that a dozen states regularly allow a government to take more than it is owed in taxes and that other states have laws that could permit it in some circumstances. The remaining states return the surplus proceeds when seized properties are sold.

Six states — Arizona, Colorado, Illinois, Montana, Nebraska and New Jersey — allow private investors to retain equity in properties once delinquent taxes are paid, the foundation says. Others allow the government to pocket the remaining equity when properties are sold.

Geraldine Tyler
Geraldine Tyler, center, lost her home to the Hennepin County government over $15,000 in unpaid taxes and fees.Courtesy Pacific Legal Foundation

Tyler bought the one-bedroom condominium in a north Minneapolis neighborhood in 1999 and lived there for more than a decade. It was only after she had moved into a home for seniors that she fell behind on her taxes, starting in 2011.

The county seized the property in 2015, with Tyler owing $2,311 in taxes, as well as almost $13,000 in related fees, including interest and penalties. A year later, the county sold it for $40,000, keeping the $25,000 in profit.

In Tyler's case, the St. Louis-based 8th U.S. Circuit Court of Appeals rejected her claims in February 2022.

The state says that under Minnesota law it “provides ample opportunity for property owners to protect their interests” before properties are seized. Owners have three years to pay the taxes and have an opportunity to repurchase the seized properties.

In effect, Tyler is arguing that the Constitution "required the state to serve as her real estate agent, sell the property on her behalf, and write a check for the difference between the tax debt and the fair market value," the state's lawyers said in court papers.

It is long established in American law that local governments can seize delinquent property as long as due process requirements are met, and compensation has never been required, the lawyers argued.