The Supreme Court will hear its final oral argument of the term on Wednesday, in the case of a 94-year-old Minnesota grandmother. Geraldine Tyler does not dispute that the county government could seize her condominium after she failed to pay her property taxes for several years. But what the county can’t do, she contends, is turn a profit on the foreclosure by pocketing the entire proceeds of the sale, rather than just the money that she owed the county – in her case, a $25,000 difference. Now the justices will decide whether the county’s actions violate the Constitution.
Tyler purchased her one-bedroom condominium in Minneapolis in 1999. But in 2010, she moved to a safer and quieter neighborhood, into an apartment building for seniors. One year later, she stopped paying the property taxes on her condo. By 2015, Tyler owed just over $2,300 in property taxes; with penalties, interests, and costs, her total debt to Hennepin County was $15,000.
Following state tax laws, the county confiscated the title to Tyler’s condo and, in 2016, sold it at auction for $40,000. The county kept all of the proceeds of the sale, with the $25,000 difference between the sale price and what Tyler owed it going to the government.
Tyler went to court, where she argued that because the home was worth $25,000 more than she owed the county, the foreclosure and sale violated the Fifth Amendment’s takings clause, which bars the government from taking private property for public use without adequately compensating the property owners, as well as the Eighth Amendment’s ban on excessive fines. The lower courts disagreed, so she appealed to the Supreme Court, which in January agreed to weigh in.
Tyler argues that the case can be resolved with a straightforward application of the takings clause. The property at issue, she says, is her equity in the condo: The government can foreclose on the condo to collect a debt, she concedes, but if it does so it is required to pay her the equity that remains. When it keeps the money instead, she says, that is a “taking.”
In rejecting her arguments, the court of appeals pointed to a Minnesota law that governs how the state distributes any money left after the tax debt is satisfied. Because the law doesn’t give the former property owner any right to the surplus, the court of appeals reasoned, there is no property right and therefore no taking. Tyler pushes back in her brief in the Supreme Court, contending that state and local governments can’t circumvent the takings clause by using state law to redefine what constitutes private property.
But even if the takings clause does not apply, Tyler continues, the foreclosure and sale of her property without compensation still violated the ban on excessive fines. The U.S. Court of Appeals for the 8th Circuit ruled that the excessive fines clause does not apply because the state’s home-forfeiture scheme is intended to compensate the government for lost revenue. But in this case and many others, Tyler insists, the state is receiving far more money than what it needs to be compensated for lost revenue, so that the forfeiture of her equity in the condo is really a penalty. Indeed, Tyler observes, there is no relationship between the amount that Tyler owed the county and the penalty that she paid by losing her equity – she would have lost even more had her property been worth more.
Hennepin County paints a very different picture of the case. It first disputes whether Tyler even has a right to sue, known as standing. The county notes that because Tyler had a mortgage on her condo for nearly $50,000, as well as a homeowners’ association lien for nearly $12,000, she didn’t actually have any equity in her condo – and therefore, on her theory, did not have any property for the county to seize.
But the county’s sale of her condo was not a taking in any event, the county continues. The Supreme Court has made clear that states can treat a property owner’s failure to comply with reasonable conditions on ownership – such as the payment of taxes – as forfeiting her entire interest in the property. In this case, the county stresses, Tyler has never said that she didn’t know about the back taxes or wasn’t able to pay them. She had five years to pay the taxes or sell the property, but she didn’t do either.
The sale of her condo also does not violate the excessive fines clause, the county writes, because this is not a fine. Minnesota’s forfeiture scheme is remedial, rather than punitive, the county explains: It compensates for lost revenue and returns property to productive use. In some cases, the county observes, property owners actually come out ahead because the property forfeiture wipes out not only the debt that the taxpayer owes to the county but also other debts that are collectively more than the value the property.
Tyler has support from a broad group of “friend of the court” briefs, ranging from the consumer advocacy group Public Citizen to the libertarian Cato Institute and the pro-business Chamber of Commerce. The Biden administration also agrees that Tyler has made out a case that the county’s actions are a taking, although it sides with the county on the excessive fines question.
The justices’ decision could affect laws in at least a dozen other states, and a study by the Pacific Legal Foundation, which represents Tyler, suggests that this case is not an isolated one: The study found nearly 9000 homes seized for failure to pay property taxes, with the homeowners losing more than $860 million in equity.
The county’s support comes largely from three states – Minnesota, New Jersey, and Oregon – and local government groups. One brief, by five different organizations, led by the Local Government Legal Center, stresses that property taxes are an important source of revenue for local governments, which rely on them to fund essential services like education and first responders.
This article was originally published at Howe on the Court.
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