Supreme Court asked to end home equity theft

Washington, D.C.; October 27, 2020: Can government take more from citizens than it is owed? An Ohio property owner has asked the U.S. Supreme Court to answer that question.

Ohio is one of a dozen states that allow home equity theft — a practice by which governments or private investors reap windfalls by taking people’s entire homes to settle considerably smaller property tax debts. Ordinarily, Ohio sells tax delinquent property to the highest bidder, uses the proceeds to pay the debt, and refunds the remainder to the former owner. But when local government wants the property for another purpose, state law allows the government to skip that process and take title and all equity in the property, no matter how valuable the property or how small the debt.

Elliot Feltner inherited a body shop, which came to him with a significant tax debt. He was in the process of selling the property to settle the debt when his efforts were interrupted by Cuyahoga County foreclosing on the property and giving it to the county-sponsored land bank. Feltner owed roughly $40,000 in taxes, plus $25,000 in penalties and interest. The property was worth $144,5000. By giving the property to the land bank, the county stole Feltner’s equity in the property.

“The government can take and sell foreclosed properties to collect as much as it is owed, but taking any more than that violates the rights of property owners,” said Christina Martin, a senior attorney at Pacific Legal Foundation, which asked the high court to hear Feltner’s case. “If the government wants to take more than necessary — skipping the traditional sale and refund of profits — then it must pay just compensation for the surplus value that it takes.

“It’s well established,” Martin said, “that property owners have a property right in the equity value they build up in their real estate. The Supreme Court should take this opportunity to reinforce that right for all Americans and tell states like Ohio that they must pay when they take a windfall of home and land equity from people.”

In July, the Michigan Supreme Court ruled in favor of PLF’s client, Uri Rafaeli, finding that Oakland County violated his rights when it took his house and all of his home equity to settle an $8 debt. Pacific Legal Foundation is fighting to end home equity theft throughout the country.

The case is Feltner v. Cuyahoga County Board of Revision.