The National Association of REALTORS® (NAR) recently submitted an Amicus Brief to the U.S. Supreme Court in one of the most important property rights cases in a decade. Tyler v. Hennepin County addresses the practice of “home equity theft,” where state and local authorities take foreclosed homes for tax sales, no matter how small the amount of taxes due or how large the amount of accrued equity.
Local governments nationwide have the right to take people’s homes when they don’t pay their taxes. In most states, extra money from tax sales goes back to the former owners. If a family owes $1 0,000 and the government sells their old home for $150,000, they can get $140,000. But in about a dozen states, the government keeps all $150,000.
Geraldine Tyler, a 93‐year‐old woman on a fixed income, owned property in Minneapolis. When she could not pay her $2,300 property tax bill, which eventually turned into nearly $12,700 with interest and fees, Hennepin County seized and sold her property to pay the bill. But instead of keeping just the $12,700 owed, the county kept the entire $40,000 from the sale—because Minnesota is one of 14 states that allows itself to take all the proceeds from tax foreclosures.
This practice often affects the poor and elderly who own their homes free of a mortgage but don’t have enough discretionary income to pay property taxes. In another example, a Michigan family underpaid their property taxes by $144, spurring Wayne County to take two homes and sell them for $108,000, with the county keeping the remainder.
After Minnesota seized her assets, Tyler sued, arguing that the county unconstitutionally took her property without just compensation in violation of the Fifth Amendment’s Takings Clause. The 8th U.S. Circuit Court of Appeals affirmed the district court’s dismissal of her case because Minnesota law declared that the home equity was not Tyler’s private property, so there was no taking.
NAR’s Amicus Brief focused on the fact that permitting the government to erase these vested property rights by the stroke of a pen undermines a core premise of property ownership. These takings significantly impact the real estate industry because they divest property owners of hundreds of millions of dollars in equity each year. REALTORS® have an interest in seeing that property owners are not stripped of their equity interests without the just compensation required by the Fifth Amendment.
During the oral arguments, Hennepin County told the Supreme Court that Tyler had five years to pay the taxes or sell the property. And, it argued, Tyler couldn’t have recuperated the surplus money—and, therefore, doesn’t have standing to sue because she owed a mortgage and back homeowner association fees.
A majority of SCOTUS justices signaled during the oral argument that they were concerned with the state law at issue in Tyler’s case.
If the county’s reading of the law is correct, Chief Justice John Roberts asked, “What’s the point of the takings clause?” The framers of the Constitution, he said, were aware of the notion of eminent domain, “but they still wanted to protect private property.”
Few people deny the government’s power to take property to satisfy the owner’s debts, subject to due process and other protections, but a government should not be allowed to take more than it is owed.
For more information visit https://www.nar.realtor/.
