On April 26, Pacific Legal Foundation will make our 19th appearance in front of the Supreme Court, this time to challenge the legality of state laws that empower local governments to steal people’s home equity to satisfy tax debts. The homeowners are left with nothing.
When the value of the stolen equity exceeds the amount owed, this practice, dubbed “home equity theft,” violates the Fifth Amendment’s Takings Clause, which requires governments to give individuals just compensation if their property is seized by the state.
For decades, states quietly got away with home equity theft—the practice didn’t even have a name. But that was before PLF caught wind of the issue in 2015 and began exposing its devastating reach.
Thousands of people across the country, many of whom are elderly, poor, disabled, or otherwise vulnerable, have been impacted, and few know that they have the right to fight back.
Over the past eight years, Pacific Legal Foundation has worked to stop home equity theft once and for all. Now, with the opportunity to make our case in front of the highest court in the country, we are closer than we have ever been to reaching our goal.
Below are some highlights of the work we have done.
Like all our work at PLF, the fight against home equity theft began with one individual who bravely stood up to the government when his rights were being violated.
2015: Coleman v. District of Columbia
In 2011, elderly veteran Benjamin Coleman had his home seized by the government over an unpaid tax bill of $133.88. Benjamin had purchased his home in Northeast DC with cash two decades prior.
As the years went by, he began to suffer from dementia.
Benjamin’s neighbors were concerned for his well-being, especially after they realized that he often forgot to buy food for himself. If a necessity like food became difficult to remember, it’s quite understandable that around this time, Benjamin also forgot to pay his property taxes.
The government responded by placing a lien on his home and tacking on an additional $183.47 in penalties. The government then sold that lien to a private investment company, which added nearly $5,000 in fees, costs, and interest.
District of Columbia law gives homeowners one last chance to keep their home if they pay the total amount owed within six months. In Benjamin’s case, that amount ballooned to more than $5,300, and he simply couldn’t afford to pay.
With the government’s help, the investment company kicked the 76-year-old out of his home and then foreclosed on the property. Adding insult to injury, the company then turned around and sold his home for $71,000—nearly $65,000 more than Benjamin owed.
Benjamin never saw a penny of his equity returned to him.
To call this anything less than theft would be dishonest. In fact, when The Washington Post exposed this story, DC quickly changed the law but then refused to right the wrongs they committed against Benjamin.
Benjamin fought back and filed a lawsuit against the District for violating his right to just compensation. The government pushed back, asserting that individuals lose Fifth Amendment protections if they fail to pay their taxes.
When PLF attorney Christina Martin heard about the case from a colleague, her first thought was, “This is stealing!” PLF has been defending property rights since it was founded in 1973 but had never tackled a case like this. Christina had a strong feeling that this was an issue that needed to be exposed and challenged, and she urged PLF to get involved.
At her prompting, PLF decided to wade into the issue, filing a friend of the court brief on Benjamin’s behalf.
So began our fight against home equity theft.
2017: Wayside Church v. Van Buren County, Michigan
With her eyes fixed on home equity theft, Christina began looking for other homeowners who had suffered like Benjamin had. That was when she learned about Wayside Church in Van Buren County, Michigan.
Wayside Church had fallen behind on its 2011 property taxes on a piece of land it had been using as a youth camp. After penalties, interest, and fees were accounted for, the church’s total tax bill came to $16,750. The county subsequently foreclosed, took the property, sold it for $206,000, and pocketed the extra $189,250.
And Wayside wasn’t alone.
When Myron Stahl was unable to pay his property tax debt, which had ballooned to $25,000 over time, the county sold his home for $68,750. Van Buren County also sold Henderson Hodgens’ farm for $47,750 to satisfy a $5,900 debt. Just as with Wayside Church, the county kept every cent of the surplus profit it made from each of the sales.
Governments are allowed to foreclose on property to satisfy a tax debt that is owed, that much is true. But when governments take more than what is owed, they must satisfy the mandate of the Fifth Amendment, which tells the government it cannot take property without paying just compensation.
Represented by private counsel, these homeowners didn’t make it out of the starting gate. The Sixth Circuit Court of Appeals upheld the district court’s dismissal of the case mainly because of a case called Williamson County Regional Planning Commission v. Hamilton Bank of Johnson City (1985). The Williamson County case essentially shut federal courthouse doors to Fifth Amendment property rights claims against state and local government.
But here is where a seemingly unrelated PLF case came into play and advanced our fight about home equity theft.
Christina explained about Pacific Legal Foundation’s subsequent involvement:
“PLF asked the U.S. Supreme Court to review the Wayside Church case and overturn Williamson County. The court denied that petition, like it did to many others like it. But a few months later, the Supreme Court agreed to reconsider Williamson County in Knick v. Township of Scott. PLF’s Dave Breemer argued that case before the U.S. Supreme Court on October 3, 2018, and again on January 16, 2019.”
PLF won Knick, throwing open the federal courthouse doors to future takings claimants.
“But what about Wayside Church, Stahl, and Hodgens? Shouldn’t they be allowed back in federal court? That’s exactly what we asked the federal trial court when we filed a motion to reopen the federal case.
Such motions are rare, and even more rarely granted. But the trial court granted the motion. The court reopened the case, stating that the Sixth Circuit’s decision was based on law that may soon change (Knick) and a wrong assumption about the remedies available in Michigan courts.”
2017: Rafaeli, LLC v. Oakland County
Now that PLF had officially thrown its hat into the home equity theft ring, the opponent needed a name.
When the Sixth District Court of Appeals refused to hear Wayside, Judge Raymond Kethledge dissented from the majority opinion and likened the County’s tax scheme to “theft.”
Between Christina’s original reaction to the problem and Judge Kethledge’s dissent, the word “theft” kept coming to mind, and for good reason. What these local governments were doing was stealing, plain and simple. Thus, the term home equity theft was born, and Pacific Legal Foundation had us a giant to slay.
Michigan was our first battleground as it appeared to be a hotbed for home equity theft. And then PLF heard about Uri Rafaeli.
Uri’s case was unlike the others. Uri had never missed a property tax payment on his rental property. But in 2011, he mistakenly underpaid his tax bill by $8.41. It was an innocent mistake, but Oakland County, Michigan, still foreclosed on his home and sold it for almost $25,000 to satisfy a debt under $10.
Uri decided to fight back and PLF filed a friend of the court brief on his behalf. After the Michigan Court of Appeals ruled against him, we stepped in to represent Uri and argued the case before the Michigan Supreme Court.
In 2020, we celebrated a major win when the Michigan Supreme Court ruled that, under the state constitution, counties cannot pocket the surplus proceeds when they seize and sell a person’s property over an unpaid tax debt. This was a huge win for the cause, but the fight was just getting started.
2021: Mucciaccio v. Town of Easton and Tallage Lincoln, LLC
Massachusetts is another state that has been an epicenter of home equity theft abuse.
Brothers Neil and Mark Mucciaccio took ownership of their childhood home after their mother passed away in 2006.
Today, Neil, Mark, his wife, disabled stepdaughter, and two of his grandchildren, one of whom has diabetes, all reside in the Easton, Massachusetts, home.
Like many families, the Mucciaccios have occasionally struggled to make ends meet, and in 2016, they missed their property tax payment. The Town of Easton initiated a “tax taking,” meaning the debt went on the books and began accruing 16% annual interest on that bill and subsequent tax bills, plus costs.
In just over six months, the town sold the tax lien on the home to a private investment firm, Tallage, for $4,355, the amount of the debt. Tallage specializes in buying property tax debts and either collecting payments from homeowners at high interest rates or, if owners are unable to pay, taking full title to the property and selling it for windfall profits.
One month after buying the lien, Tallage began the foreclosure process.
The Mucciaccios were unaware that they were about to lose their home. They were sent a foreclosure notice, but it was riddled with complex legalese they didn’t understand.
By 2019, the foreclosure process was complete. When all the interest and fees were accounted for, the brothers’ tax debt stood at $30,000. The family’s home was valued at $276,500, but they weren’t going to get a penny of the remaining $245,000.
PLF got involved in 2021 and represented the brothers in their lawsuit—a suit Tallage ultimately settled, allowing the Mucciaccios to stay in their home. This would not be the only time we encountered Tallage. The company has been a key player in Massachusetts’ tax scheme, preying on and taking equity from homeowners because the law allows them to do so.
Tallage continued with business as usual.
2022: Foss v. City of New Bedford, et al.
Deborah Foss, a grandmother who suffers from a host of chronic health issues, was forced to spend a Massachusetts winter in her car after the City of New Bedford helped Tallage steal her home over an unpaid tax debt.
Deborah fell on hard times and couldn’t pay all of her 2016 property taxes, which eventually grew to a total debt of $30,000. Her home was valued at $241,600, but instead of ordering Tallage to return the $210,000 in equity she retained in the home after they sold it, the tax laws allowed them to keep it all.
In 2022, Deborah found Pacific Legal Foundation and we represented her lawsuit.
With Tallage facing the pressure of their business dealings with the government finally being challenged, the company avoided answering for its practices in court by offering a settlement to Deborah, just as they did for the Mucciaccios.
These settlements were victories for our clients, no doubt. But because the issue of home equity theft never went to court, the laws in Massachusetts were never constitutionally challenged and they remain on the books today.
2022: Hall v. Meisner
Back in Michigan, there was another case going on at the same time as Uri’s fight.
Tawanda Hall, a nursing assistant, and her husband Prentiss owned a home in Oakland County, Michigan, where they raised their family. They fell behind on their taxes in 2016 but were quick to go to the government and set up a payment plan.
The Oakland County treasurer ended the plan, however, with the tax debt standing at $22,642, and foreclosed on their home. The Halls were shocked to learn that the foreclosure took from them not only the value of debt but every penny of equity they had built up in their $300,000 house.
Instead of selling the house at public auction, paying off the debt, and returning the surplus to the homeowners, the county used the Halls’ money to enrich a private company, Southfield Neighborhood Revitalization Initiative, LLC, managed by City of Southfield officials.
The Michigan Supreme Court in Rafaeli said the government had to return the surplus if they seized a home to satisfy a debt…but that applied only in instances when the government actually sold the home, as opposed to handing over the lien to a third party. A federal district court held that since the county sold Tawanda’s home to a private company for $1.00, which then sold the home for $300,000, the county did not make a windfall and therefore the Rafaeli ruling did not apply to Tawanda.
PLF represented Tawanda and several other families as they fought back.
Once again, Judge Kethledge was on our side, and this time he had the support of the other judges.
…the Michigan statute is not only self dealing: it is also an aberration from some 300 years of decisions by English and American courts, which barred precisely the action that Oakland County took here.
…The government may not decline to recognize long-established interests in property as a device to take them.
He concluded: “We therefore reverse the district court’s dismissal of their claim against the County under the Takings Clause of the U.S. Constitution.”
A victory, yes. But the case is not resolved. Tawanda now goes back to court to get the money she is owed.
Tawanda’s case was a turning point for home equity theft, which was now gaining national attention. John Stossel even featured Tawanda and PLF’s work in one of his videos.
2023: Tyler v. Hennepin County
Nearly ten years after we got involved in home equity theft, PLF will have the opportunity to make our case in front of the Supreme Court on behalf of our client, Geraldine Tyler.
Geraldine is 94 years old. Until a few years ago, she lived in a condo she owned in Minneapolis, in Hennepin County, Minnesota. But Geraldine’s family eventually moved her into a senior living community, where she felt safe and secure.
But she still owned the condo and missed property tax payments totaling about $2,300.
The government tacked on thousands of dollars in interest, fees, and other penalties until the bill reached $15,000 in 2015. At that point, the county seized Geraldine’s condo and sold it one year later for $40,000. Instead of keeping the $15,000 it was owed and refunding Geraldine the sale surplus, the county kept all $40,000.
Pacific Legal Foundation represents Geraldine with the assistance of Charles Watkins of Guin, Stokes & Evans, LLC and attorneys at Reinhardt Wendorf & Blanchfield and at Teske Katz, PLLP.
Next week, Christina will be delivering oral arguments in front of the Supreme Court.
The end of the timeline?
PLF’s ultimate goal is to end home equity theft for good.
If the Supreme Court rules in Geraldine’s favor, homeowners will be able to challenge their state’s home equity theft laws, armed with a legal precedent.
Even now, there are other home equity cases that are on hold pending the outcome of Tyler.
The individuals highlighted here represent only a handful of the cases Pacific Legal Foundation has worked on and only a small fraction of the number of people who have been impacted.
If we are victorious in our upcoming Supreme Court case, our work on the issue will pivot to ensuring that states comply with the ruling. And our fight to defend individuals from the threat of government stripping them of their most precious constitutional rights always continues.