House Oversight Committee to investigate home equity theft in DC
The House Oversight Committee recently announced an investigation into the District of Columbia’s use of home equity theft, highlighting a major threat to property rights.
Home equity theft is a shady government practice that allows governments to seize a person’s property over a tax debt, sell it, and pocket all the proceeds—including the homeowner’s equity. Often, the stolen equity far exceeds the actual tax debt the property owner owed. Worse still, home equity theft disproportionately impacts those who lack the resources to fight back, like the elderly and families struggling to make ends meet.
As Chairman James Comer explained in the Committee’s letter to the Council of the District of Columbia, “Washington, DC, our nation’s capital, is depriving Americans of their property through punitive tax law that results in home equity theft.”
Home equity theft is an issue near and dear to Pacific Legal Foundation. Over the years, we have made ending the practice a cornerstone of our work to protect individual property rights—including two appearances at the Supreme Court.
The House Oversight Committee’s decision to open this investigation is especially welcome news to PLF because, while our fight against home equity theft now spans the country, it all began in Washington, DC, over a decade ago.
PLF enters the fight
In 2013, PLF attorney Christina Martin came across an article in The Washington Post about an elderly veteran who was left with nothing after he had fallen prey to home equity theft.
Two years earlier, the government had seized the home of Benjamin Coleman, a widowed, ex-Marine with dementia, over a $133.88 tax debt. The District of Columbia placed a lien on his home, ultimately selling that lien to a private investor. With the government’s help, the investment company kicked the 76-year-old out of his home and then foreclosed on the property.
The home was valued at $197,000. After it was taken, the investment company turned around and sold it for $71,000—a price exceedingly more than Benjamin’s tax debt. Benjamin never saw a penny of his equity returned to him.
But Benjamin was not alone. The Post’s investigation had uncovered hundreds of DC homeowners who had lost their property over tax debts of less than $1,000.
That DC had been allowed to use a blatantly unconstitutional practice to steal equity from homeowners was shocking, to say the least.
The Fifth Amendment’s Takings Clause protects property owners from this kind of abuse by mandating that governments pay just compensation when they seize private property. When a tax is owed, the government has the right to satisfy that debt. But it cannot take more than it is owed. If the government takes a $200,000 home to satisfy a $1,000 tax debt, it must compensate the homeowner for the $199,000 in home equity they’ll be losing.
When Christina learned that Benjamin, along with several other impacted DC homeowners, were filing a class action lawsuit against the District of Columbia, she wanted to help. She brought the home equity theft issue to the attention of others at PLF and wrote PLF’s amicus brief in Coleman v. District of Columbia, marking our first venture into the fight against home equity theft. That case settled. But after Coleman, it became clear that the home equity theft problem was not unique to DC. Since then, PLF has been able to help property owners who lost their properties and had nowhere else to turn.
A renewed spotlight in DC
The media attention on Mr. Coleman helped prompt the District of Columbia to change its laws to protect owner-occupied homes. This was a crucial step and made D.C. a less important focus than the many states that had zero protections—more than a dozen states were confiscating all equity in tax foreclosure cases, even owner-occupied homes. But after PLF’s unanimous victory at the U.S. Supreme Court in a home equity theft case, most states have fixed or significantly improved their laws, leaving D.C. one of the only entities that has failed to comply with the Supreme Court’s holding that ruled home equity theft unconstitutional.
While Coleman prompted an important first step by D.C. a decade ago, the District still has work to do.
As Chairman Comer wrote in the Committee’s letter: “After Mr. Coleman filed suit, the District changed its laws to only protect owner-occupied homes, still leaving others subject to this practice.”
The chairman also pointed to one of PLF’s ongoing DC home equity theft cases, Clear Sky Holdings, LLC v. Estate of Gaston Powell, Sr.
“In another instance, the Powell family owned a home in the District for almost a century that was valued at $713,000. After a series of family illnesses and deaths, the Powells fell behind on their property taxes and the city swooped in and sold the debt to an investor. Due to the increased interest from this sale and the District declaring the property ‘blighted,’ the taxes and fees owed on the Powell family’s home shot up from $41,000 to over $182,000.” That was the amount due when Juanita Powell stood up against DC’s unconstitutional law more than a year ago. But because of the District’s shocking abusive penalties for vacant and blighted properties, plus additional penalties and interest, the debt now exceeds $360,000.
“While many states have amended their laws to abide by the Court’s ruling in Tyler, the District continues the practice of taking generational wealth accrued through home ownership from hard-working families and handing it to third-party investors,” Chairman Comer wrote.
Pacific Legal Foundation is pleased to see the House Oversight Committee shedding light on an issue that continues to threaten DC homeowners. And we wholeheartedly share the Committee’s concerns that “the District is one of the last few jurisdictions not to comply with Tyler.”
