On May 25, the Supreme Court ruled home equity theft unconstitutional in its unanimous Tyler v. Hennepin County decision. The case, argued by my colleague Christina Martin, challenged Hennepin County, Minnesota’s confiscation of Geraldine Tyler’s former home as payment for approximately $15,000 in back taxes, costs, interests, and penalties. Even though the property was worth much more than what she owed, the government took the entire home, including all of the equity in it. The Supreme Court held that by taking more than what was owed, the county violated the Constitution’s Fifth Amendment.
“The county had the power to sell Tyler’s home to recover the unpaid property taxes,” Chief Justice John Roberts wrote in the decision, but “it could not use the toehold of the tax debt to confiscate more property than was due.”
Legal commentators around the country have been discussing the significance of the Tyler decision and what it means for various states going forward:
Over at The Volokh Conspiracy, Ilya Somin, law professor at George Mason University, said Tyler “sets a significant precedent. Most obviously, the jurisdictions that currently authorize home equity theft—some twelve states and the District of Columbia—will no longer be allowed to do so. In addition, the holding that states cannot just redefine property rights at will has important implications for other property rights issues. It makes it harder for states to avoid takings liability.”
The Boston Globe editorial board urged Massachusetts to reform its laws post-Tyler: “[P]rotecting the rights of homeowners ought to be part of any future legislative housing package. The Supreme Court decision has provided the opportunity to do just that.”
Mother Jones called Tyler “a true unicorn of a case” that “made just about everyone happy for once.” Reporter Noah Lanard noted the possible implications of Justice Neil Gorsuch’s concurring opinion, also signed by Justice Ketanji Brown Jackson, which suggested the government had violated the Eighth Amendment’s prohibition on excessive fines in addition to the Fifth Amendment’s Takings Clause. “A more expansive interpretation of the excessive fines clause could potentially block the civil asset forfeiture used by police departments to take property that was allegedly used in criminal activity,” Lanard said. “That is an outcome that would be celebrated by both progressives and libertarians.”
Massachusetts Lawyers Weekly spoke to several attorneys about what the decision means. Boston land use attorney Gerry D’Ambrosio said it would “wipe out” the practice of Massachusetts investors reaping a windfall in excess equity “in a very good way.” University of Massachusetts School of Law Professor Ralph Clifford told the magazine that if he were still practicing, he’d want to file a class action lawsuit on behalf of former homeowners to recover millions of dollars in stolen equity. Meanwhile, Daniel C. Hill, legal counsel for Tallage—a Massachusetts investment firm that has profited from home equity theft—said an “unambiguous takeaway from Justice Roberts’ opinion in Tyler is that states must provide a mechanism for property owners to retain the surplus equity after a tax foreclosure.” But Hill seemed to think Tallage would not have to give up on its business model entirely—a perspective that was not shared by retired bankruptcy judge Frank J. Bailey, who said, “The same problems presented in the Tyler case are presented by the way Tallage operates here.”
At Bloomberg Law, attorney David Wilkes called the decision “a simultaneous victory for odd bedfellows—both economically disadvantaged homeowners as well as libertarian-oriented property rights advocates…. Home equity may seem an ephemeral concept, but it is a valuable property right, and the court said that it deserves compensation when taken.”