The Badger State just became a better place to live and own a home. A recently passed law bans counties from engaging in an unjust practice known as “tax and take” or “home equity theft.”
Home equity theft is only possible in around a dozen states across the United States. In those states, if you fall behind your property taxes, local governments can seize and sell the tax-delinquent properties and keep all the profits from the sale, even when the property sells for much more than the tax debt.
Wisconsin used to be one of these “tax and take” states. But on March 31, Gov. Tony Evers signed a law requiring counties to return any windfall from tax sales to the former owners. Previously, only homestead owners could claim such tax sale proceeds — and only if they did so within 60 days of notice.
According to data obtained through public record requests by my colleagues at Pacific Legal Foundation, at least 900 Wisconsin homeowners across eight Wisconsin counties had lost their homes and all equity they had built in their homes between 2014 and 2021. But that figure significantly understates how widespread the equity theft problem was. The data we examined did not include nonresidential properties and only covered a third of the Wisconsin population.
We found that many Wisconsin homeowners lost up to 99% of all their hard-earned savings built in their homes due to home equity theft. Among the counties that we studied — Dane, Waukesha, Brown, Racine, Outagamie, Winnebago, Kenosha, and Rock — home equity theft was most highly prevalent in Brown and Kenosha counties.
While tax foreclosures are reasonable means for the government to collect unpaid taxes, the government should not keep any more than what is owed. Taking families’ hard-earned equity over unpaid or underpaid taxes is theft. This unfairly penalizes Americans who are already struggling with difficult life circumstances that resulted in them falling behind with their taxes in the first place. People affected by home equity theft often suffer from mental or physical illness or financial hardship. Losing their homes and their lifetime of savings only exacerbates their devastation.
Home equity theft is also unconstitutional. The Fifth Amendment of the U.S. Constitution prohibits the government from taking property for public use without just compensation. While the government can impose penalties for late tax payments, the Eighth Amendment prohibits excessive fines. A penalty that is 100 times the late tax payment is unconstitutionally excessive.
While Wisconsin eliminated home equity theft, many other states continue to take from their vulnerable residents. Although varying significantly in form, size, and scope, home equity theft is still a reality in Alabama, Arizona, Colorado, Illinois, Massachusetts, Maine, Minnesota, Nebraska, New Jersey, New York, and Oregon.
Pacific Legal Foundation is committed to ending home equity theft across the country and has already succeeded in some states. In 2019, Montana passed a bill that curtails home equity theft. In 2020, the Michigan Supreme Court ruled that home equity theft violates property rights. In 2021, North Dakota also ended home equity through a legislative fix.
One by one, home equity theft is being struck down or ended. Wisconsin’s legislative reform that ended its predatory tax laws is a perfect example for the remaining wayward states to follow.
Owning a home is a part of the American dream. For many families, their homes are their only significant asset, and their home equity is their only savings. Home equity theft kills American dreams and must end now. Other states should follow Wisconsin’s lead and eradicate home equity theft.
This op-ed was originally published by The Washington Examiner on May 4, 2022.