On Wednesday, April 26, Pacific Legal Foundation senior attorney Christina Martin will argue Tyler v. Hennepin County at the Supreme Court. At issue is whether local governments can take absolute title to a person’s home for tax debts, even when the home is worth more than the debt, interest, and costs.
The case arose when Geraldine Tyler, then in her 80s, failed to make property tax payments on her Minneapolis condo. The county foreclosed and sold the property at auction, keeping every penny for itself. Ms. Tyler argues the county’s retention of the home’s value beyond the tax debt is unconstitutional: It’s either a taking of her property without just compensation in violation of the Fifth Amendment or a fine subject to evaluation under the Eighth Amendment’s Excessive Fines Clause. Minnesota is one of about a dozen states that steal equity in this way.
Yet the road to justice in the Supreme Court did not begin with the Tyler case. Pacific Legal Foundation, with the involvement of several other organizations, kept up a drumbeat of cases and other advocacy that is typical of many landmark civil rights victories. Several of those organizations filed a half-dozen or more briefs on the issue in support of PLF or other litigation. Among the most tireless champions fighting to end home equity theft were AARP and its affiliates and The Buckeye Institute. The Cato Institute filed or joined at least four briefs we are aware of, and many other organizations filed in two or more cases.
In the Tyler case, there were eight amicus briefs filed last year on behalf of eleven entities and individuals that sought High Court review of our petition, and 26 briefs on behalf of 49 parties have been filed that support a ruling granting Ms. Tyler relief (even if the United States captions its brief as in favor of neither party).
The amici include the Solicitor General of the United States, Utah and seven other states that return surplus equity to homeowners after tax foreclosure, four of Minnesota’s representatives in Congress, advocates for the elderly and disabled, experts in American and English legal history, trade associations, think tanks, real estate professionals, and more. Each brief supports either Geraldine Tyler’s takings claim, the excessive fines claim, or both. Because the Takings Clause seeks to obtain results embodying “fairness and justice,” as the Supreme Court has phrased it, many amici combined legal arguments with policy considerations to highlight the devastating harms felt by those most impacted by home equity theft.
Here are links to all the amicus briefs filed at the merits stage and a sampling of excerpts to provide a taste of the arguments presented to the Court:
[C]onsider the human cost of such laws for the nation’s older homeowners in particular. Inevitably, those laws will have a disproportionately greater impact on older homeowners of modest means. These homeowners are most at risk of property tax foreclosure in the first place, often for reasons beyond their control. Many live on low fixed incomes and face steadily rising food, utilities, and medical expenses, suffer physical ailments, and are forced to navigate complex financial waters without access to affordable professional financial advice. These challenges not only raise the risk of being sued for unpaid taxes, but also imperil their ability to defend themselves and resist foreclosure. Moreover, for them, tax authorities’ seizure of their excess home equity is nothing short of catastrophic. That equity in their home often is their only sizeable financial asset. And, unlike their younger counterparts, many older homeowners no longer have the option of re-entering the workforce to try to recoup the loss.
The Takings Clause is unconditional. Its simple and unadorned language provides, “Nor shall private property be taken for public use, without just compensation.” Those words, which restrict and qualify the traditional government power of eminent domain, can more precisely be called the Just Compensation Clause. They carry the same meaning today that they did when they were written with quill and ink, affirming the equitable premise that “[w]hen the government physically takes possession of an interest in property for some public purpose, it has a categorical duty to compensate the former owner.” … [W]hen the government takes property—particularly when the government takes real property to satisfy a debt—its power to take goes only so far as is necessary. A taking that leaves the government with a profit at the property owner’s expense violates this principle. The Framers’ generation and 19th-century jurists rightly understood equity in real estate to be a form of personal property and thus protected from uncompensated or unwarranted takings.
Private property rights are essential to a free society, and when governments violate those rights, they destabilize the public’s trust in, and respect for, the system under which they live. The practice in a minority of states of confiscating surplus proceeds from a foreclosure sale, after the relevant delinquent taxes and fees are recouped, is just such a violation of these rights. Unlike Minnesota, most states protect a homeowner’s right to the surplus equity in a house after that house is sold to satisfy a past-due tax…. Those states demonstrate a willingness to provide several opportunities
for homeowners to pay their debts and recover any excess profits if a house must be sold as collateral…. In states like Massachusetts and New Jersey,
where rights to tax liens are often sold at auction, profiting from the confiscation of surplus equity has become big business. These private companies have no incentive to make it easy for homeowners to redeem their
properties. As one court explained, such companies “are responsible to their investors, not the citizens of a city or town, and their goals and incentives are not the same. Maximizing return on investment may not include accommodation to individual circumstance to the same extent a municipality, acting for itself, might otherwise deem warranted.” These systems create
perverse incentives for private industry to prey on homeowners, often from the most vulnerable populations.
States can define property rights and legislatures can change common-law rules, but when a state divests a common-law property right via legislation and without compensation, the state takes the property contrary to the Fifth Amendment. The Founders were wary of legislatures taking away property rights—one of the arguments for ratifying the Constitution emphasized that it would prohibit state legislatures from taking away certain property rights. Although state law (among other principles and customs) may define the contours of property, legislatures cannot define away property rights without just compensation. And home equity has historically been recognized as protected property.
[T]he right to own and enjoy one’s property is one of the fundamental, indeed inalienable, rights on which our system of law and government rests. James Madison wrote “as a man is said to have a right to his property, he may be equally said to have a property in his rights.”
Local governments that profit from tax foreclosures are incentivized “to give inadequate notice of tax delinquency status” and “to foreclose on as many properties as possible and thereby make a larger profit.” Although “[p]rompt receipt of tax revenue” is important to government budgets, and foreclosure on tax liens may be an essential means of collection, those considerations provide no justification for allowing governments to profit at the expense of their least financially secure citizens by retaining more than they need to satisfy taxes owed. The just compensation guarantee of the Takings Clause serves to avoid that unjust result.
The usual and general rule for surplus proceeds from a foreclosure sale has been settled for centuries under the common law: They belong to the former property owner…. This traditional rule should not come as a surprise to Minnesotan lawmakers. The Minnesota Supreme Court long ago recognized, as a matter of common law, that a property owner enjoys a right to “surplus [equity that] exists independently of [any] statutory provision.” Indeed, the Eighth Circuit did not dispute that there was a “common-law rule that gave a former landowner a right to surplus equity.” … Not only that, but Minnesota lawmakers themselves also have followed the traditional rule. Specifically, Minnesota law on mortgage foreclosure sales requires the return of surplus funds to the debtor. But when it comes to the State? Rules for thee, but not for me, apparently.
Homeowners with equity in their homes generally do not intentionally lose their homes through foreclosure. It makes no economic sense to do so. If a homeowner has equity in their home, “they will always prefer to sell their homes rather than default … so they can pay off their outstanding [debts] with the proceeds [from] the sales.” … Foreclosures generally occur due to a significant, and unexpected, tragedy in life, such as illness, job loss, divorce, or an accident that results in a major change to a family’s financial situation. … The loss of home equity exacerbates the problem of finding new housing because most affected homeowners will not have the financial means to make down payments or security deposits. In some cases, the loss of home equity prevents the owner from making a financial recovery and from becoming a homeowner again.
By expressly sanctioning the taking of a $40,000 asset to satisfy a $15,000 debt, Minnesota law sharply preferred one of Petitioner’s creditors at the expense, and to the detriment, of all other creditors with claims to her assets, including the equity in the home in excess of the de minimis state tax claim. This result is contrary to fundamental principles upon which parties rely in extending debt in commercial transactions.
The equity that homeowners build in their properties is among the most cherished and important property rights protected by law. … Permitting the government to erase these vested property rights by the stroke of a pen undermines a core premise of property ownership. … Rather than protecting private property, governments have conscripted it into service of the state without compensation. These intrusive (and unconstitutional) government interventions range from eviction moratoria and draconian rent-control regimes to egregious tax-foreclosure regimes—like Minnesota’s—that purport to divest property owners of long-recognized property interests.
Even if the district court were correct that a penalty cannot be deemed punitive solely because the government “receives more than what is necessary to make it whole,” neither can the inquiry ignore the fact that a state is extracting huge monetary profits from people it accuses of shirking their property tax obligations.
This Court’s excessive-fines precedents certainly have distinguished between payments that serve “at least in part as punishment” and those that “serve solely a remedial purpose.” In the Eighth Amendment context, however, remedial is best read as compensatory; if a payment serves purely to compensate for loss caused by the payor, the Court’s precedent suggests that it is not punitive and thus not a fine. As articulated by this Court, then, the line is relatively uncomplicated. If the government imposes a monetary obligation purely for “the remedial purpose of compensating the Government for a loss,” that obligation is said not to be punitive. But if the obligation goes beyond securing “compensation or indemnity,” it cannot be classified as “remedial.” Rather—if it is at least partly punitive—it is a fine.
Civil forfeitures and penalties trigger scrutiny under the Excessive Fines Clause if they serve at least “in part to punish.” … [H]istorically, both civil and criminal actions were used to impose punishment for offenses against the public. It was the public nature of the offense, not the form of litigation, that rendered early customs forfeitures punitive. Accordingly, the Excessive Fines Clause applies equally in civil cases so long as the forfeiture is imposed in response to an offense against the public, including violations of revenue laws…. Once a forfeiture is deemed a fine, its remedial qualities—including the extent to which it compensates—may speak to the question of excessiveness, but that is a distinct second step. A forfeiture’s remedial qualities cannot override its punitive qualities at the first step of the Excessive Fines Clause analysis. … The district court failed to properly recognize the Excessive Fines Clause’s role as a bulwark against government imposition of punishments out of accord with legitimate penal aims, and particularly punishments imposed against politically vulnerable individuals. Course correction from this Court is needed to ensure the Excessive Fines Clause remains a potent shield against government abuses.
Restrictions on the seizure of private property to satisfy tax debts date to Magna Carta and were deeply embedded in the common law by the time the Framers’ adopted the Constitution. Minnesota law thus revives old tyrannies, and a decision sustaining it would encourage governments nationwide to run roughshod over core property rights—to the detriment of all private property owners, including the nation’s businesses.
[W]hile lawmakers sought to prohibit individuals from profiting at the misfortune of their neighbors, they were unwilling to go so far as to deprive local governments of the opportunity to do the same. … Respondents’ assertion that [Tyler] chose not to save her home is a cruel disregard for her inability to pay, and her critical need for the home equity funds that went to the municipal coffers.
Like Minnesota, Massachusetts has no mechanism for property owners to be compensated for so-called “excess” or “surplus funds.” … As the late Chief Justice of the Massachusetts Supreme Judicial Court opined, the tax taking and foreclosure process is both “archaic and arcane[.]” … The Chief Justice further observed that “(1) private homeowners are rarely represented in tax lien foreclosure proceedings, (2) this body of law is difficult to understand even for experienced attorneys, and (3) the complexity and opacity of this process can, and sometimes does, result in catastrophic consequences for homeowners[.]” … whereas a state may have a legitimate interest in strongly incentivizing the prompt payment of real estate taxes, this is the reason that borderline usurious interest rates, fees and costs may be constitutionally added to underlying tax liabilities. The government has no legitimate interest in seeking to collect sums in excess of debts already substantially augmented, frequently by multiples of the underlying principal tax liability, to compel prompt payment.
This case is about whether the government can expand its power to take from taxpayers without constitutional scrutiny more than it is owed through creative labeling and legislative ipse dixit—declaring the confiscation is neither a taking nor a fine but some other method of making property disappear from the owner’s grasp and magically reappear in the state’s coffers free from constitutional scrutiny. To be sure, the scope of “property” protected by the Fifth Amendment’s Takings Clause is generally determined by examining currently applicable state property law. But under certain circumstances, the Clause’s protection against takings without just compensation sweeps more broadly to incorporate property rights historically recognized under the common law backdrop of the Constitution. Indeed, as [Sixth Circuit] Judge Raymond Kethledge recently explained, “the Takings Clause would be a dead letter if a state could simply exclude from its definition of property any interest that the state wished to take.”
United States of America (filed in support of neither party; for Tyler on takings; opposed on excessive fines)
Properly understood, petitioner has stated a claim for a taking for which just compensation may be due. Petitioner’s condominium presumably was indivisible, such that respondents could seize and sell the entire property to pay petitioner’s debt. But the taxing power did not entitle respondents to take absolute title to property more valuable than petitioner’s debt, extinguish her rights, and retain the excess value. Any taking thus occurred when respondents obtained absolute title, at the close of the redemption period, in 2015. Although the surplus proceeds from the later tax sale may inform the amount of compensation due, those proceeds are not themselves the relevant property interest for takings analysis. … Historical practice indicates that taking absolute title to property more valuable than a tax debt requires compensation. From the Founding through the Civil War, Congress and most States expressly limited tax collectors to selling no more land than necessary to satisfy a landowner’s tax debt. Even in the absence of such express limitations, courts and commentators stated that background principles prohibited tax collectors from selling more land than necessary to pay a tax debt.
[B]ecause home equity is “the most substantial source of wealth” for most households in the United States—the “primary savings mechanism” for much of the country’s population—the government’s seizure of excess home equity under these circumstances has lasting, damaging consequences. [The] subsections of the taxpaying population for which those consequences are especially severe [are] low-income communities and communities of color. Beyond their affront on fundamental notions of fairness, the tax foreclosure regimes at issue perpetuate and exacerbate the racial inequity that unfortunately pervades the United States’ history of home ownership.
From April 2021 to May 2022, approximately one in four Medicaid beneficiaries reported being behind on their housing payments, half of whom were somewhat or very likely to face eviction or foreclosure. This nexus between recognized disability and economic disadvantage leaves millions of southerners vulnerable to exploitative tax foreclosure sales and impractical redemption policies.
Government bureaucracy can be slow or inefficient enough for notices to be misplaced or sent to the wrong address in that short time. Even when notices timely arrive at the right address, distressed former homeowners may—conveniently for California governments—not be in sufficient physical or mental condition to file a claim nor have the aid of someone who can. After one year with no claim filed, the property belongs to the State of California, as it is in Minnesota. Striking Minnesota’s tax windfall will help California and other states to clean up their tax collection laws to comport with the U.S. Constitution as it pertains to what is typically an American’s most vital asset and symbol of financial stability and prosperity: a home.