It can be hard to find much on which Americans across ideologies agree these days, but here’s one: When you owe the government an inch, it shouldn’t take a mile. On that proposition, all nine members of the Supreme Court concurred on May 25, ruling in Tyler v. Hennepin County, that the Fifth Amendment prohibition on taking property without just compensation barred a Minnesota county from seizing someone’s home for back taxes, selling the home, and then keeping not just what was owed, but the entire amount of the home’s sale.
Now, states that allow such predatory tax foreclosure schemes — known as “home equity theft” — must reform their laws, or else taxing entities could be liable for significant damages.
The briefing in the case foreshadowed the Supreme Court’s cross-ideological consensus. Pacific Legal Foundation (PLF) and the American Civil Liberties Union (ACLU), for which we respectively work, often disagree, but in this case we were on the same side. PLF represented Geraldine Tyler, the victorious homeowner in the case_, _and the ACLU submitted an amicus brief along with the Cato Foundation and other organizations supporting Tyler.
Geraldine Tyler, 94, of Minnesota, had owned a condo in Hennepin County since 1999 but fell behind on her property taxes beginning in the early 2010s. She owed $2,300 in back taxes. After the government tacked on penalties, interest and fees, that figure ballooned to $15,000. But when the government foreclosed on her condo, they sold it for $40,000 and kept every penny, leaving Tyler with nothing and the government with a $25,000 windfall.
But Tyler had her day in court — and won.
The court ruled that home equity theft violates the Fifth Amendment. While the government can recover the $15,000 she owed in taxes and fees, the Constitution protects Tyler’s right to the rest of the money. As Chief Justice John Roberts put it, “The taxpayer must render unto Caesar what is Caesar’s, but no more.”
What happened to Tyler was not a fluke — it was built into Minnesota’s tax laws. And Minnesota is not alone in reaping windfalls from the misfortunes of its citizens; about a dozen states and the District of Columbia engage in this type of government-sanctioned theft. Now, those jurisdictions will have to reform their tax laws in response to the court’s ruling.
A recent study by PLF shows that, between 2014 and 2021, municipalities in Minnesota confiscated more than $100 million in equity by foreclosing on homes. They took 100% of the properties’ value for debts that amounted to 10%, on average. During the same period, other states that engage in this practice seized another $760 million from property owners. For many of these homeowners, the equity built up in their home represented all or virtually all of their life savings. According to the Census Bureau, home equity makes up nearly one-third of the nation’s overall household wealth.
Victims of home equity theft are often among society’s most vulnerable — the elderly, the ill, the impoverished. They can fall behind on property taxes for all sorts of reasons: They may be distracted by death or illness in the family, they may have lost their job, or they may not have known that they owed anything.
All too often, the government fails to inform people about their tax debts and the consequences of default. That isn’t surprising when you consider the incentives for the government. As long as officials thought they could inflate their budgets by taking more than they were owed in taxes, there was, perhaps, a perverse incentive to let properties default — so that the government could seize the property altogether.
This practice is not just unconstitutional — it’s fundamentally unfair. As the court explained, the Fifth Amendment’s Takings Clause “was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole. A taxpayer who loses her $40,000 house to the State to fulfill a $15,000 tax debt has made a far greater contribution to the public fisc than she owed.”
Thanks to Geraldine Tyler’s victory, states that employ this kind of predatory tax foreclosure will have to reform their laws to stay within constitutional bounds. This shouldn’t be too difficult, since every state already has fair debt-collection laws that apply to private creditors, such as mortgage lenders. No state allows a bank to pocket your equity in a mortgage foreclosure, and the Tyler case says the government must play by the same rules.
Depending on the statute of limitations in a given jurisdiction, recent victims of home equity theft may still have claims against the government to recover their equity; state legislatures would do well to reform their laws as quickly as possible to help municipalities avoid further liability.
States that still allow home equity theft should look to Nebraska, where legislators responded to the Supreme Court’s ruling by passing into law Legislative Bill 727, ending home equity theft in that state.
The injustice of Tyler’s case was so plain that it united PLF, the ACLU, and all nine of the justices. But it took constitutional litigation to the nation’s highest court to establish what should be a simple proposition: If the government is owed an inch, it has a right to take the inch — but not the mile.
This op-ed was originally published at The Messenger on June 19, 2023.
David Cole is national legal director of the American Civil Liberties Union.