Bloomberg Tax
May 25, 2023, 2:21 PMUpdated: May 25, 2023, 7:38 PM

State Owes Seized Home Surplus to Tax Debtor, Justices Say (3)

Perry Cooper
Perry Cooper
Legal Reporter

Local governments that keep surplus proceeds when a homeowner’s property is seized and sold to settle tax debts commit unconstitutional takings, the US Supreme Court ruled Thursday.

Geraldine Tyler, now in her 90s, moved out of her Minneapolis condominium and into a senior community in 2010 when she became concerned about crime. After she ran up a $15,000 tax debt on the condo, including fines, costs, and interest, Hennepin County sold the property for $40,000 and didn’t give Tyler the surplus.

“The county had the power to sell Tyler’s home to recover the unpaid property taxes. But it could not use the toehold of the tax debt to confiscate more property than was due,” Chief Justice John G. Roberts Jr. wrote for the unanimous court. “The taxpayer must render unto Caesar what is Caesar’s, but no more.”

Tyler filed a proposed class action arguing the Minnesota county’s actions amount to a Fifth Amendment taking without just compensation or an excessive fine under the Eighth Amendment. Only 14 states allow the government to take valuable real estate and all equity in the property as payment for small tax debts.

“Today’s decision is a major victory for property rights in the United States,” Tyler’s attorney Christina Martin of the Pacific Legal Foundation said in a statement. “This decision affirms that property rights are fundamental and don’t depend solely on state law. The Court’s ruling makes clear that home equity theft is not only unjust, but unconstitutional.”

Matt Hilgart of the Association of Minnesota Counties, which filed an amicus brief in support of the county, noted that the state’s tax forfeiture process, which “rightfully so, prioritizes keeping individuals in their homes,” is complex and costly for county governments to administer. “Counties are responsible for assuring that abandoned properties do not create a safety or wellbeing risk to the community and do not disproportionately burden other property taxpayers,” he said. “It remains the case that for most properties going through foreclosure process, counties spend far more taxpayer resources preserving, cleaning up, and getting the property back to a sellable condition than what they may be compensated for through a sale.”

Nelson Distinguished

A federal trial court dismissed Tyler’s suit and the US Court of Appeals for the Eighth Circuit affirmed. Minnesota law doesn’t recognize a private property interest in surplus equity in the tax-foreclosure context, the appeals court held.

The Supreme Court reversed, rejecting the county’s argument that Tyler could have sold her condo to pay the debt before the county seized it. “Requiring a taxpayer to sell her house to avoid a taking is not the same as providing her an opportunity to recover the excess value of her house once the State has sold it,” the court said.

It also rejected the county’s argument that Tyler didn’t suffer a financial harm from the sale of her home, because she owed more than it sold for on a mortgage and a homeowner’s association fee lien.

Tyler plausibly alleged a financial harm because she still remains personally liable for those debts, the court said. “Had Tyler received the surplus from the tax sale, she could have at the very least used it to reduce any such liability,” it said.

The court distinguished Minnesota’s law from the New York law at issue in its 1956 ruling in Nelson v. New York City, which held that nothing in the US Constitution prevents the government from retaining the surplus as long as it adequately notified the homeowner of the tax debt and its consequences.

“Unlike in Nelson, Minnesota’s scheme provides no opportunity for the taxpayer to recover the excess value; once absolute title has transferred to the State, any excess value always remains with the State,” the court said.

Excessive Fines

The majority said that because it found a Fifth Amendment violation, it didn’t need to reach Tyler’s Eighth Amendment argument.

The federal government had recommended in its amicus brief that the court decide the case under the takings clause and not the excessive-fines clause.

Justice Neil M. Gorsuch wrote a concurrence, joined by Justice Ketanji Brown Jackson, to ensure that lower court’s don’t emulate the Eighth Circuit’s mistaken excessive-fines analysis.

“Economic penalties imposed to deter willful noncompliance with the law are fines by any other name. And the Constitution has something to say about them: They cannot be excessive,” Gorsuch wrote.

Takings Trend

The decision is the latest in a series of Supreme Court rulings over the last five years enforcing takings clause protections for private property, Covington & Burling LLP partner Kevin King said. He predicted the ruling’s impact will be broader than what he described as “home equity theft” cases like Tyler’s “by protecting longstanding property rights against other types of governmental intrusions,” such as “unprecedented new forms of housing and environmental regulations.”

Several of the diverse groups that filed amicus briefs in support of Tyler hailed the ruling.

“Vulnerable people are disproportionately harmed when the government keeps more than it was owed after seizing someone’s home to satisfy a tax debt,” Wendy Liu of Public Citizen Litigation Group said. “Today’s ruling correctly held that the government cannot take more than was due.”

William Alvarado Rivera, senior vice president of litigation for AARP Foundation said older adults are particularly vulnerable to losing their homes through foreclosure. “Today’s decision makes clear that the government may not keep more than what someone owes when it forecloses on that home, which often is our most valuable asset,” he said.

The U.S. Chamber of Commerce Litigation Center’s senior counsel Tyler Badgley called the ruling a “major legal victory for property owners and businesses by blocking state and local governments from seizing private property without paying an owner’s equitable interest in their property.”

The National Taxpayers Union Foundation touted the concurrence, which adopted the excessive fines arguments the group made in its amicus brief.

“For too long, it’s been an article of faith that excessive tax penalties cannot be constitutionally challenged, but Gorsuch and Jackson from opposite ends of the Court rejected that today,” Executive Vice President Joe Bishop-Henchman said in a statement.

Martin argued for Tyler. Assistant to the Solicitor General Erica L. Ross argued for the federal government. Neal K. Katyal of Hogan Lovells US LLP argued for the county. Katyal didn’t immediately respond to a request for comment.

The case is Tyler v. Hennepin Cnty., U.S., No. 22-166, 5/25/23.

(Updated with additional comments in the penultimate paragraph.)

To contact the reporter on this story: Perry Cooper in New Bern, N.C. at

To contact the editors responsible for this story: Patrick Ambrosio at; Maya Earls at; Rob Tricchinelli at

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