Supreme Court weighs ‘home equity theft’ dispute

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

Geraldine Tyler’s home in a 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,” and is asking the Supreme Court to end it. The court, which has a 6-3 conservative majority, is often sympathetic to property rights claims.

The Pacific Legal Foundation said in a report last year that a dozen states regularly allow the practice and other states have laws on the books that could permit it in some circumstances. The remaining states return the surplus proceeds when a seized property is sold.

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

The justices will decide if such seizures violate the takings clause of the Constitution’s Fifth Amendment, which requires that the government pay compensation when property is taken. They will also weigh whether government action could be viewed as an excessive fine under the Constitution’s Eighth Amendment.

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

Tyler purchased 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, plus almost $13,000 in related fees, including interest and penalties. A year later, the county sold the property 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 a February 2022 ruling.

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

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.