SCOTUS ruled home equity theft unconstitutional…what comes next?

June 01, 2023 | By JIM MANLEY
Tyler supreme court

In a unanimous decision last week, the Supreme Court ruled home equity theft unconstitutional, securing an individual’s right to just compensation when their property is seized.

For years, Pacific Legal Foundation has argued that home equity theft—when governments satisfy property tax debt by taking a person’s home, selling it, and keeping more than the amount owed—violates the Fifth Amendment’s prohibition on taking property without compensation.

With the support of the entire Supreme Court behind us, our work is just getting started.

The win in our case Tyler v. Hennepin County is excellent news, especially for those who live in one of the 12 states where this shady tax scheme is routinely used, and another nine states where home equity theft occurs on a more limited scale. But the war has not yet been won. And there is still work to be done before we can hammer the final nail in home equity theft’s coffin.

To understand what comes next in the fight, it’s important first to recognize what the ruling did and what it did not do.

What Tyler did

The Tyler decision is being lauded by people and groups all over the political spectrum as the end of home equity theft.

But it’s really just the end of the beginning, not the beginning of the end.

In this case, the Supreme Court held simply that property owners can make the argument that home equity theft is unconstitutional.

This decision paves the way for our client, 94-year-old Geraldine Tyler, to go back to the Minnesota courts, where the case originated, and assert her right to just compensation. For Geraldine, this means recovering the money that was stolen from her when the government took her condo to collect a debt, and then kept every cent of the equity.

But the ruling goes well beyond Tyler.

This decision also opens the door for another Pacific Legal Foundation client, Kevin Fair, to continue his challenge to Nebraska’s home equity theft laws.

Consumed with the costs of his dying wife’s medical bills, Kevin had been unable to pay his property taxes. Nebraska seized his home and sold it to a private investment company without giving Kevin a cent of the surplus left over after his debt had been paid. He tried to fight for his right to just compensation in state court but lost his case. His appeal to the Nebraska Supreme Court was unsuccessful.

On his behalf, Pacific Legal Foundation asked the Supreme Court to hear his case, but it was put on hold pending the outcome of Tyler. It is likely that the Court will now send Kevin’s case back for reconsideration in light of the win in Tyler.(UPDATE: On June 5, the Supreme Court did just that, and Kevin’s case will now be reconsidered by the lower courts.)

Kevin is just one of many who have fallen prey to home equity theft and who can now use the Tyler decision to fight for their constitutional rights.

And Pacific Legal Foundation will be there to help them. But this war on home equity theft is fought on two fronts. There is another battle that must be won to address what the Tyler ruling did not do.

What Tyler didn’t do

The court’s ruling did not abolish home equity theft laws outright. As of today, the states that had these laws prior to Tyler still have them on the books, where they will remain until state legislatures step in and change the laws.

States that don’t change their laws to comply with the Court’s ruling now face damages in the millions in future lawsuits. But that doesn’t necessarily mean they won’t try to continue business as usual. Some of these states may very well continue using home equity theft, or only minimally modify their practices to comply with the letter but not the spirit of the ruling, assuming few of their victims will fight back in court.

So, while Tyler created a straightforward path to challenge home equity theft in court, the burden to fight still falls on individuals, which is why we need to put a stop to home equity theft laws once and for all.

Enter state lawmakers.

What comes next?

The only way to abolish home equity theft completely is for state legislators to change their tax laws.

Pacific Legal Foundation has published guidelines and model policy to help states reform their laws. We also pledge to offer legal assistance to legislators who requestit. Beyond simply ending home equity theft, legislators can take this opportunity to create a tax system that protects property owners, while ensuring taxes are collected. That means: protecting the right to pay overdue taxes without losing your home; delivering multiple, easy-to-understand notices to taxpayers; limiting interest and penalties; and ensuring that when homes are taken to collect back taxes, procedures are in place to protect equity.

PLF also plans to send letters to tax collectors that routinely profit from home equity theft, warning them to stop stealing property owners’ equity or face the consequences in court—including monetary damages and attorney fees.

States are already enacting meaningful reform. North Dakota, for example, changed its laws ahead of the Tyler decision to ban home equity theft in the state. The remaining states should follow North Dakota’s lead and end the practice of home equity theft for good.

Our fight to end home equity theft must be fought in courtrooms as well as statehouses. Thankfully, we are already making progress in both.