Wall Street Journal: The Supreme Court Takes Up ‘Home-Equity Theft’
Geraldine Tyler never thought she’d end up in front of the U.S. Supreme Court—especially at 94. But she also never imagined the government would seize her Minneapolis home and sell it. Ms. Tyler is a victim of what’s often called home-equity theft, but this form of robbery isn’t criminal; in fact, it’s legal in a dozen states. The Supreme Court, which hears oral arguments Wednesday in Tyler v. Hennepin County, has the opportunity to end these predatory tax foreclosures once and for all.
Ms. Tyler’s trouble began when she moved into a senior residence in 2010 and fell behind on her property taxes. She ended up owing Hennepin County roughly $2,300. After tacking on penalties, interest and related costs, her debt ballooned to $15,000. To collect what it was owed, Hennepin County seized and later sold the one-bedroom condo for $40,000. You might think the county would settle the $15,000 debt and return the $25,000 balance to Ms. Tyler. But the county took all $40,000 and left her with nothing to show from her only significant asset.
Ms. Tyler fought back, and the justices will soon decide whether the government violated the Constitution by confiscating the total value of her former home.
Most states treat property-tax collection like other debts, only taking as much as the government is owed. But Minnesota is one of 12 states, plus the District of Columbia, that regularly take a windfall when collecting delinquent property taxes. Several more states that typically protect property-tax debtors have created special loopholes that allow the government to take a windfall so long as it uses the property for public purposes.
As a result, thousands of owners are robbed of their equity every year. A recent study by Pacific Legal Foundation found that governments seized at least 8,950 homes between 2014 and 2021. That’s only the tip of the iceberg since the study could only examine a limited sample of foreclosures in these states. The total losses suffered by the debtors—usually elderly, sick or poor—are shocking. In Massachusetts alone, the government took $56 million in equity between August 2013 and July 2014, according to research by University of Massachusetts law professor Ralph Clifford.
These laws create perverse incentives that lead to tragedies. Michigan’s Oakland County seized one retiree’s rental home in 2013 when he mistakenly underpaid his 2011 taxes by $8. In Washington, a veteran struggling with dementia lost his $200,000 home because he missed $133 in taxes.
Meanwhile, Kevin Fair of Scottsbluff, Neb., has a separate petition pending before the Supreme Court that raises the same constitutional claims as Ms. Tyler’s case. Mr. Fair suffered financial troubles when he had to quit his job in 2013 to care for his dying wife. When he underpaid his property taxes by $588, the county sold that debt to Continental Resources, a private investment company.
Unknown to Mr. Fair, the company quietly paid the subsequent taxes while Mr. Fair’s debt grew at 14% interest over three years. When the debt had grown to $5,268, Continental Resources sent Mr. Fair a bill and a 90-day warning. When he was unable to pay his debt, the county gave his entire $60,000 home to the investment company. Mr. Fair’s petition argues that this practice of government agencies handing over tax-delinquent property to private investors without compensating debtors for their equity is unconstitutional.
Mr. Fair, Ms. Tyler and property owners everywhere may soon get justice. If the Supreme Court rules for Ms. Tyler, home-equity theft and all the devastation left in its wake could swiftly end. If the high court takes the additional step of giving Mr. Fair relief, then states that outsource the unpleasantness to private investors would likewise be on notice that the injustice must stop.
Given the support from dozens of groups across the political spectrum—including AARP, the American Civil Liberties Union, the American Taxpayers Association, legal-aid groups, eight states and many free-market think tanks—the ground is shifting and home-equity theft will soon be a thing of the past. When it is, we’ll be able to credit people like Ms. Tyler and Mr. Fair for having the courage to fight back.
This op-ed was originally published in The Wall Street Journal on April 21, 2023.
