
The Supreme Court’s unanimous decision in Tyler v. Hennepin County marks a significant victory for property owners, putting an end to unconstitutional “equity theft” in tax foreclosures.
At a Glance
- Supreme Court rules property owners must be reimbursed for excess equity after tax foreclosures
- Decision declares “equity theft” violates Fifth Amendment’s Takings Clause
- Ruling expected to prompt legislative changes in states with similar laws
- Case originated from Hennepin County seizing and selling a condo over $15,000 tax debt
- Nearly a dozen states still have laws allowing governments to keep excess equity
Supreme Court Upholds Property Rights
In a landmark decision, the United States Supreme Court has unanimously ruled that local governments cannot keep the excess proceeds from tax foreclosure sales without violating the Constitution. This ruling in Tyler v. Hennepin County protects property owners’ equity after property seizure for tax debts, marking a significant victory for individual rights and limited government.
The case originated in Minnesota, where Hennepin County seized and sold Geraldine Tyler’s condo to settle a $15,000 tax debt. The county then kept the entire $25,000 proceeds from the sale, pocketing an extra $10,000 beyond what was owed. This practice, known as “equity theft,” has been declared a violation of the Fifth Amendment’s Takings Clause by the Supreme Court.
The Supreme Court unanimously ruled it is unconstitutional for governments to keep more money from a property seizure sale than it needs to satisfy unpaid property taxes. https://t.co/KRnP4csOEs
— Breitbart News (@BreitbartNews) May 26, 2023
Implications for Property Owners and Local Governments
The Court’s decision emphasizes that surplus equity is a property interest protected by the Takings Clause, and states cannot bypass this protection by enacting statutes. This ruling has broad implications beyond Minnesota, affecting similar tax foreclosure schemes in other states. Nearly a dozen states still have laws allowing governments to keep excess equity from tax foreclosures, but this decision is expected to lead to new legislation and constitutional challenges.
The decision highlights the need for legislative changes to protect property owners’ rights. Organizations like the Pacific Legal Foundation’s End Home Equity Theft project are tracking related legislation and litigation to ensure compliance with the Court’s ruling. Property owners, especially conservatives who value limited government and individual rights, should remain vigilant and engage in legislative processes following this decision.
Impact on Lenders and Investors
While the decision may not significantly impact mortgage lenders, as tax foreclosures are rare on properties with equity, it does encourage the establishment of a priority system for lien payments after foreclosures. Mortgage lenders often use escrow accounts to ensure taxes and insurance are paid, providing an additional layer of protection for property owners.
Private investors involved in tax debt collection could face liability for constitutional violations. This aspect of the ruling serves as a warning to those who might seek to profit from government overreach in property seizures. It reinforces the conservative principle that government power should be limited and that private property rights must be respected.
Protecting Your Property Rights
In light of this ruling, property owners should be aware of their rights and take proactive steps to protect their assets. The National Consumer Law Center provides ten practical tips to avoid losing a home due to unpaid property taxes, including challenging assessments, applying for tax relief programs, and considering bankruptcy as a last resort.
Two years ago, I interviewed a woman whose home was seized over unpaid taxes.
But her house was worth $286K MORE than what she owed.
The Supreme Court now says that's unconstitutional.
Yet she still hasn’t gotten her money back: pic.twitter.com/yKpNK76VTr
— John Stossel (@JohnStossel) October 1, 2024
Conservative property owners should view this decision as a reaffirmation of fundamental constitutional principles. It underscores the importance of limited government and the protection of individual property rights against excessive state power. As we move forward, it is crucial to remain informed about local tax laws and to support legislation that aligns with the Supreme Court’s ruling, ensuring that the government at all levels, respects the property rights of American citizens.