Property ownership is more than a financial investment; it is an embodiment of the American Dream and the foundation of solid and prosperous communities.
However, an alarming practice known as home equity theft undermines the value of this investment, jeopardizing the hard-earned equity that families build over a lifetime through homeownership.
Home equity theft allows local governments to take more than what is owed in property taxes, interest and penalties in the instance of a foreclosure. This unjust practice disproportionately harms vulnerable homeowners, especially the elderly living on fixed incomes, stripping them of all the equity they have worked hard their whole lives to build.
According to a study by the Pacific Legal Foundation (PLF), from 2014 to 2021, 8,600 homes and more than $780 million in savings were lost to home equity theft.
In 2023, with support from the American Property Owners Alliance, the Supreme Court ruled 9-0 in favor of a 94-year-old Minnesota woman who fell victim to unjust tax foreclosure laws. The local government not only took what she owed in taxes, but also all her equity. Following this ruling deeming home equity theft unconstitutional, many states passed laws—or have bills pending—to eliminate the practice. Yet today, 10 states and Washington, D.C., still allow it either in its entirety or through loopholes permitting home equity theft in certain circumstances.
To eradicate home equity theft nationwide, we must hold policymakers accountable and advocate for comprehensive policy reforms in these states. Unfortunately, even in states where reforms are proposed, many fall short.
In Alabama, Arizona, Michigan, New Jersey and New York, the process for property owners to claim their surplus equity is so convoluted that many give up altogether. This issue, known as “shadow equity theft,” often results in homeowners losing the equity they rightfully deserve.
For instance, public records from Oakland County, Michigan, reveal that in 2022, only nine property owners among the 196 tax-foreclosed properties were able to successfully claim the surplus proceeds that belonged to them. Despite more than $4 million being available, burdensome processes led about $3.2 million—more than 77%—to be absorbed by the government instead of rightfully returned to the homeowners.
It is unacceptable for states to maintain loopholes that require property owners to fight for what is rightfully theirs. States allowing home equity theft in any form must prioritize enacting robust protections to end this practice and provide straightforward processes for claiming surplus equity after a tax sale.
By eliminating these unjust laws, we can strengthen property owner protections and safeguard the value of property ownership so Americans can live without worry that a small tax debt could strip them of their home and life savings.
For more information, visit https://www.nar.realtor/.
