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Blog > Issues > Property Rights > The Supreme Court could end home equity theft this upcoming term

The Supreme Court could end home equity theft this upcoming term

October 27, 2020 I By CHRISTINA MARTIN

If you are late on your property taxes, can the government take more than you owe in taxes, penalties, interest, and costs? PLF filed a petition on behalf of Elliot Feltner, asking the U.S Supreme Court to answer that important question. If granted, the Court could end predatory tax foreclosures that allow the government to take a windfall from debtors. 

Feltner lost $80,000 in equity when Cuyahoga County took his property as payment for a tax debt. Even though Ohio normally sells tax-delinquent property, pays the debts, and refunds any remaining proceeds to the former owner, the county skipped that process because a county-sponsored land bank had requested the property. According to Ohio law, this is perfectly legal. 

Feltner inherited the property—a vacant mechanic’s shop in Cleveland—after his wife died of cancer. His father-in-law had once run the shop, until he fell ill and eventually died shortly before Feltner’s wife was diagnosed with cancer.  When Feltner sorted through the paperwork, he discovered the property had accumulated substantial property tax debts. He decided to sell it to clear the debt.  

Unfortunately, his efforts were delayed when severe spinal problems forced him to seek back surgery and rehabilitation in Kentucky. He returned home to Ohio nearly two years later. During a title search for a prospective buyer he learned that he’d missed some important notices about the property in his absence: Cuyahoga County officials had already filed documents to have a government agency foreclose his property. His efforts to save his equity in the property failed. Cuyahoga County took the land and autobody shop valued at $144,500 to pay approximately $40,000 in property taxes and costs and $25,000 in penalties and interest. Adding insult to injury, the County never collected his $65,000 debt. It instead gave the property to the land bank, which then (in the name of economic revitalization) gave it to a business for the steeply discounted price of $15,000. 

Feltner is not alone. In more than a dozen states, statutes allow local governments to satisfy delinquent property taxes or utility bills by confiscating property, no matter how small the amount of taxes due or how valuable the property. The result in such states is often shocking as property localities deprive owners of their equity in homes, farms, and landIn Massachusetts alone, localities took $56 million in equity from property owners in just one year.  

In another PLF case, Rafaeli v. Oakland County, Oakland County took a Southfield, Michigan home from 83-year old Uri Rafaeli when he accidentally underpaid his property taxes by $8. The County sold his property at auction for $24,500 and then kept all the proceeds.  In July the Michigan Supreme Court held that Oakland County violated the Michigan Constitution by taking more than Rafaeli owed. 

In Feltner’s case, the Ohio Supreme Court perfunctorily denied Feltner’s similar takings claim. Two state justices, Justice Fischer and Chief Justice O’Connor dissented, stating that his takings claim deserved serious consideration and that the scheme of taking a windfall at the expense of Feltner “is unsettling and just seems wrong.” 

Feltner’s petition asks the United States Supreme Court to hear Feltner’s case and uphold his constitutional right to be paid for his equityThe government can take property to collect debts, but when it takes more than it is owed, it violates a traditional property right. The government ought to pay Feltner for his equity.  

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