During the last recession, Gary Guidotti, a 78-year old electrician in Cascade County, Montana, fell behind on his property taxes. Under Montana’s tax law, the county took his home because of the $1,125 tax debt and sold it to investors for pennies on the dollar. Guidotti lost everything while investors reaped a windfall—taking absolute title to Guidotti’s $140,000 home.
Guidotti is not alone. For many years, Montana’s tax law has empowered government officials to seize homes and land from people who fall too far behind on their property taxes. State law has allowed government to essentially sell this private property to investors for the amount of the unpaid taxes, interest, and penalties due on the property.
That practice is unfair and unconstitutional. But I’m happy to report that Pacific Legal Foundation efforts have helped Montana’s legislature finally change course. Yesterday Senate Bill 253 became law. The new law protects homeowners’ equity by requiring homes be sold to the highest bidder. Now the extra profits must be returned to the former owner after deducting taxes, interest, penalties, and costs.
The bill’s roots trace back to an August 2018 speech I gave to the United Property Owners of Montana about constitutional property rights. I shared about PLF client Uri Rafaeli, who lost his Michigan house valued at more than $60,000 because he accidentally underpaid his property taxes by $8.41. Oakland County, Michigan, sold his house and kept every penny. I warned the audience that even though most states require that the government keep only what it is owed and return the surplus profits to the former owner, Montana law authorized government to take everything and give the windfall to investors.
Upon hearing this speech, state Senator Cary Smith told me that if he was reelected, he would make it a priority to fix this law in Montana’s 2019 legislative session. He kept that promise and in November asked me for recommendations to fix Montana’s law. Those recommendations became Senate Bill 253.
Fortuitously, at the same time, PLF was launching a new policy initiative aimed at advancing our mission of protecting constitutional rights through legislation. Our new legal policy director, Clint Brown, flew to Montana, met with leaders, and helped the bill overcome obstacles raised by county treasurers and private investors. At one point, the bill was nearly defeated in a house committee. But thanks to Brown’s vigilance, and strong bipartisan support from Senators Cary Smith and Tom Jacobson, the bill has finally become law.
Other states with similar laws, like Nebraska, Oregon, and Arizona, should follow Montana’s example. Not only is it the right thing to do, it is the fiscally responsible thing to do. Many courts, including the state supreme courts of New Hampshire, Vermont, and Mississippi, have held that similar attempts by local government violated the constitutional requirement that government pay just compensation when it takes private property for a public use. Michigan’s Supreme Court may soon do the same in Rafaeli’s case. And when that happens, counties will have to pay just compensation to thousands of former owners.
For most people, their home and land equity is their biggest source of savings. While government can constitutionally take property and sell it to collect delinquent debts, the law has historically protected debtors’ equity by requiring that after collecting on the debt, the government must refund the surplus profits to the former owner. This surplus represents an owner’s equity in their property and is entitled to constitutional protections.
Senate Bill 253 will protect that equity for homeowners, but Montana still has more work to do. The bill, as originally proposed, would have protected all types of property. Senate Bill 253 only protects certain classes of property, such as residential, agricultural, and forest property. But it is a very important step in the right direction, and a well-deserved win for Montana taxpayers, homeowners and property rights advocates.