LOCAL GOVERNMENTS COMMIT HOME EQUITY THEFT when they take and sell a home at auction for unpaid property taxes but do not allow the homeowner to claim the equity in the property beyond what was owed. The Supreme Court of the United States ruled in 2023 in Tyler v. Hennepin County that home equity theft is unconstitutional,¹“Victory! Supreme Court Declares Home Equity Theft Unconstitutional: Tyler v. Hennepin County,” Pacific Legal Foundation, accessed December 14, 2025, https://pacificlegal.org/case/mn_home_equity_theft/ and since then, most states have created a process for homeowners to claim excess proceeds from property tax auctions.²“End Home Equity Theft” (website), Pacific Legal Foundation, accessed December 14, 2025, https://homeequitytheft.org/

However, experts allege that some states have made these processes so difficult that most eligible property owners accidentally waive their rights to their equity.³Jim Manley, “These States Are Trying to Bring Back Home Equity Theft,” Pacific Legal Foundation, March 21, 2024. The outcome—windfall profits for governments—can be the same as home equity theft, but it is hidden by the claims process, justifying the neologism “shadow equity theft.”

Five states currently engage in shadow equity theft: Alabama, Arizona, Michigan, New Jersey, and New York.⁴“Confusing Procedures Can Result in Shadow Equity Theft,” Pacific Legal Foundation, accessed December 14, 2025, https://homeequitytheft.org/shadow-equity-theft This research in brief details the claims process in those states, shows outcomes for the process in Michigan, and provides recommendations for improving that process in Michigan and other states.

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