Geraldine Tyler’s case, now before the Supreme Court, could change tax seizure practices in more than a dozen states. It would be a big win for elderly and poor homeowners.
by Kelly Phillips Erb, Forbes Staff
In1999, Geraldine Tyler, then a 70-year-old retired county worker, bought her own apartment—a modest one-bedroom condo in Minneapolis, Minnesota, near a park and public transit. She lived there for a decade, dutifully paying her real estate taxes, until worries about rising crime and an incident involving a neighbor led her to make a hasty move across town to a senior community in a safer neighborhood.
The move was good for her peace of mind but not for her pocketbook. She couldn’t keep up with the bills for both places and by 2015 had accrued $2,311 in unpaid property taxes on the condo plus interest, costs, and penalties totaling nearly $13,000. Eventually, Hennepin County seized Tyler’s condo and sold it for $40,000. But rather than keep the $15,000 it was owed and refund Geraldine the $25,000 sale surplus, the county kept the whole $40,000.
That’s perfectly legal in Minnesota–at least for now. When it comes to collecting property taxes and some other government debts, local governments in Minnesota take what’s called absolute title, meaning that they can keep all proceeds from a sale, no matter how much the windfall exceeds the amount they’re owed.
Today, lawyers for Tyler will argue before the U.S. Supreme Court that this practice violates the U.S. constitution. The grandmother of four is now 94 and living in an assisted living facility, but if she wins, she would change a practice that has harmed thousands of other homeowners, many elderly, across the country.
In Minnesota alone, from 2014 to 2020, more than 4,300 properties were taken and sold. Of those, more than 1,200 were family homes—meaning they were not vacant or considered commercial. These families lost their homes for debts that averaged 8% of their properties’ value. Or, put another way, homeowners who had their homes seized lost 92% of the value of their home, or $207,000, above the tax debt that was owed—the average debt was just $17,000. That’s all according to the Pacific Legal Foundation, a nonprofit legal organization that has, as its mission, to defend Americans’ liberties “when threatened by government overreach and abuse.” It’s representing Tyler pro bono (for free).
PLF calls the Minnesota practice “an egregious violation of fundamental property rights.” But the state isn’t alone. According to PLF, 12 states and the District of Columbia allow the government to seize your property over tax debts, code enforcement fines, or obligations to government agencies, then sell it and leave you with nothing. Nine other states allow for this kind of taking—which PLF calls “home equity theft”—in limited situations.
HOME EQUITY THEFT IN AMERICA
All of your home equity can be seized in 12 states and the District of Columbia, while nine other states allow it in limited situations.
Hennepin County, in its response brief filed with the Supreme Court, suggests that homeowners who lose their properties do so voluntarily. The county claims that “Tyler chose not to pay property tax.” And, the county suggested, Tyler could have sold her condominium or refinanced her mortgage, or signed up for a tax payment plan. But, they say, Tyler refused, instead, requiring “the State to 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 argue that Tyler wouldn’t have any equity in the property anyway–there were other liens on her property.
While it might be easy to blame tax delinquents for shirking their duties, these far-reaching state statutes can have devastating consequences for homeowners who fall behind on their taxes for non-blameworthy reasons. That includes many elderly property owners like Tyler who may leave their residences for medical or other reasons without fully understanding what could happen or for those who find themselves unable to make ends meet. Homeowners who experience cognitive decline, physical or mental illness that led them to financial difficulty—or are simply poor—are at risk under these schemes to lose far more than they owe.
This is why, in an amici curiae (meaning, literally, friends of the court) brief filed in support of Tyler, the American Association of Retired Persons (AARP), the AARP Foundation, and the The National Consumer Law Center (NCLC) urged the Court to consider the “human cost of such laws for the nation’s older homeowners in particular.” Older homeowners of modest means are, they argue, most at risk of property tax foreclosure, often for reasons beyond their control. Many live on low fixed incomes and face steadily rising food, utilities, and medical expenses, have physical ailments, and are forced to navigate complex financial waters, like tax sales, without access to affordable professional financial advice, since that equity is their only sizable financial asset. And, unlike younger homeowners, many older homeowners no longer have the option of re-entering the workforce to try to recoup the loss or qualify for alternative financing. These challenges not only increase the likelihood that older homeowners might be sued for unpaid taxes, but also make it more difficult for them to defend themselves and resist foreclosure. Taking their home equity, the amici note, “is nothing short of catastrophic.”
Tyler’s own legal fight has been going on for years. In 2019, a St. Paul firm, Reinhardt Wendorf & Blanchield (which is still involved in the case) filed a putative class action lawsuit against Hennepin County with Tyler as the lead plaintiff. It was dismissed with a federal judge citing the very premise she now says is wrong—that forfeiture wipes out an owner’s property interest. On appeal, the Eight Circuit affirmed the dismissal. But in January of this year, the Supreme Court agreed to hear Tyler’s case.
It’s important to understand that Tyler isn’t claiming she paid the tax. She’s arguing that the county should not have been allowed to fatten its coffers–beyond what she legitimately owed– at her expense. It’s already been established, her lawyers note, that the government may lawfully seize property to collect a debt. But when it takes more than what it is owed, they claim, it violates both the Takings Clause and the Excessive Fines Clause. The Fifth Amendment to the Constitution prohibits the government from taking property–such as home equity–without just compensation. The Eighth Amendment bans excessive fines and fees—and the disconnect between the amount owed and the property value could be described as a punitive fine.
Hennepin County, in its response brief filed with the Supreme Court, suggests that homeowners who lose their properties do so voluntarily.
Under the Eighth Circuit’s reasoning, Tyler’s lawyers argue, even the smallest debt—underpaying by a few dollars—would entitle the government to the entire value of a debtor’s property. This stance, they argued in their petition for certiorari to the Supreme Court, “flouts historical tradition, the fairness and justice embodied by the Just Compensation Clause, and principles established by this Court.”
True, it’s a practice that’s been going on in Minnesota for nearly 100 years. But, Tyler’s lawyers argue, the basic concept that should protect Tyler dates back much further to 1215 and the Magna Carta, which limited how much property could be taken to satisfy a debt. And a bit more recently—in 1855—the Supreme Court itself found in Murray’s Lessee v. Hoboken Land & Improvement Co., that while the government may seize property to collect a tax, it exceeds its legitimate authority to collect the debt when it takes more than what is owed.
It’s a question that the Minnesota Supreme Court answered a few years later in 1866, writing in Baker v. Kelley, 11 Minn. 480, 488, 499 (1866), “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.”
But later on, 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.” Minnesota’s tax forfeiture scheme, Tyler’s lawyers claim, 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 needed to satisfy the debt owed plus reasonable interest, penalties, and costs. In other words, it feels more like punishment.
Around the country, as recent cases show, it’s not only local governments that have been profiting from homeowners’ misfortunes. Still, dispossessed homeowners have notched some victories, too.
In 2019, for example, a Massachusetts family lost its home to Tallage Lincoln, LLC, a private investment company that specializes in buying property tax debts. Brothers Neil and Mark Mucciaccio had lived in their childhood home with Mark’s wife, his disabled stepdaughter, and two of his grandchildren, one of whom has juvenile diabetes. When medical bills made it difficult to make ends meet, they failed to pay their taxes and the tax liens were sold by the Town of Easton, where the house was located, to Tallage. The Mucciaccios owed $30,000 in taxes, interests, and costs—but under Massachusetts law, Tallage was entitled to all of the equity in the home worth $276,500. The Mucciaccios, represented by PLF, filed a suit against Tallage and Easton that challenged the state law; the suit was dismissed after Tallage agreed the family could pay the debt and reclaim title to the home.
In the District of Columbia, Benjamin Coleman, a 76-year-old veteran with severe dementia, lost his house, valued at $200,000, over a $133.88 tax bill. With the additional penalty, his tax bill hit $317.35 and was sold at a public auction to Embassy Tax Services, LLC. Embassy tacked on $4,999 for “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 realized what had happened, he tried to make payment arrangements and wrote letters to the court explaining that his father had been ill. When neither Coleman nor his son appeared in court proceedings, Embassy claimed full title to the property and evicted the retired Marine sergeant. Coleman’s conservator, Robert Bunn, who was appointed by the court to oversee Coleman’s finances, took the matter to court, which rejected efforts by the District of Columbia to dismiss the case, finding that common law can create a property interest in the surplus created by a tax-foreclosure sale. In other words, the court disagreed with the District’s premise that “winner takes all,” finding that even when a homeowner lost property in a tax-related foreclosure or sale, the homeowner still had some rights to equity in the property.
The bottom line, however, is that state and local governments have financial incentives not to change their practices, unless they’re forced to.
In Michigan, a similar battle ended in a broader win for homeowners. In his 80s, Uri Rafaeli lost his property after underpaying by $8.41. With interest, penalties, and fees, he eventually owed $285.81. Oakland County seized his property and sold it at auction—pocketing a nearly $25,000 profit in the process. The court initially found that under the General Property Tax Act, Rafaeli lost his interest in the property, and as a result, didn’t have any property interest in the proceeds–even though those proceeds far exceeded the debt. In 2020, however, the Michigan Supreme Court reversed the lower court, finding that “The remedy for a government taking is just compensation for the value of the property taken,” and property owners are entitled to the value of those surplus proceeds as just compensation. The result was that the Michigan law was overturned.
The bottom line, however, is that state and local governments have financial incentives not to change their practices, unless they’re forced to. Many local governments depend on these proceeds to plug budget holes. According to PLF, Detroit has a budget line for the expected windfalls from home foreclosures, while in Minnesota, Maine, and Oregon, municipalities routinely seize properties and keep the surpluses for the government’s benefit. Even when funds are usually returned, there can be incentives to carve out exceptions—in Ohio and California, the law permits confiscation of the entire value if there’s a benefit to public use or economic revitalization.
In some states, there have historically been few restraints on what can be done with the proceeds. In Michigan, before the state Supreme Court ruled in homeowners’ favor, some local officials had auctioned properties to their families and related businesses at a discount. In Montana, before the practice was banned in 2019, local treasurers sold foreclosed homes for pennies on the dollar to preferred private investors–now, by law, properties in tax sales must be sold to the highest bidder. No such protections exist in states like Nebraska, Oregon, and Arizona.
Tyler’s lawyers argue that these laws and how they can be enforced have created “a pressing national problem that has festered for decades in the lower courts.” Her case, they say, is an excellent vehicle to address them on a national basis.
Oral arguments will be heard on April 26, 2023—it will be the last Supreme Court case heard this term. A decision is expected in June of 2023.
The case is Geraldine Tyler, Petitioner, v. Hennepin County, Minnesota, et al.
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At 94 years old, Maria Antonia Lopes was an unlikely heroine. After serving over 50 years in her small three-bedroom home in Merida, Mexico, Maria was devastated to find that her home had been sold by her government without her permission. With the help of Fundacion Sur, a foundation that assists individuals facing injustices due to government corruption, the elderly widow was ready to fight back.
Maria was shocked to learn that her home, which was bought by the state a few years prior due to its degrading condition, was sold to a local business without her involvement or consent. Most concerning, the proceeds of the sale were not given to her or her family, but instead taken by the government-run company that sold it.
Although Maria was nearing the end of her life, she was determined to get justice. With the help of Fundacion Sur, she was able to take legal action against the government-run company to recover the proceeds of her home. After a lengthy legal battle, the company finally agreed to hand over the missed profits to Maria and her family.
The case of Maria was an inspiring example of citizens standing up against the government. With the help of Fundacion Sur and other brave individuals, these wrongs are able to be pushed back against and justice is restored. Although Maria’s story was a unique inspirational case, there is still more work to be done to ensure that all citizens are treated fairly and their rights are respected. This case proved that when citizens who are oppressed fight together, they can make a difference.