Seized Home Sold for Profit Set for Supreme Court Consideration

The US Supreme Court Wednesday will consider the seizure of a widow’s home over roughly $2,300 in unpaid taxes—a case that pits an individual’s rights to their home equity against counties’ sovereign rights to impose local tax policy.

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.

Tyler and her supporters argue 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, they say.

“By failing to pay just compensation when it takes someone’s home to collect on a tax debt, the government reaps a windfall at the expense of people struggling for financial stability,” Wendy Liu of Public Citizen Litigation Group said. Public Citizen is among the diverse groups that filed 25 amicus briefs in support of Tyler.

Hennepin County and its supporters stress that Tyler had five years to pay down the taxes or sell the property herself—likely for more than the county ultimately sold it for. They stress that counties aren’t running a racket to make money off homeowners who fall on rough times.

“Does that mean that other taxpayers are subsidizing the non-payment of taxes by their neighbors, even when those properties could be an income producer for the person who hasn’t paid?” said Matt Hilgart of the Association of Minnesota Counties, which filed an amicus brief in support of the county. “That seems very unjust to me.”

The federal government, though ostensibly filing an amicus brief in support of neither party, backed Tyler’s takings argument. However, it urged the court to reject her excessive fine argument if it reaches it, noting that “Minnesota’s tax-forfeiture program bears none of the hallmarks of punishment.”

Bloomberg Law’s Perry Cooper recently joined our weekly On The Merits podcast to examine the case. Click below to listen and subscribe to On The Merits on Apple Podcasts, Spotify, Google Podcasts, Megaphone, or Audible.

‘Lynchpin of Well-Being’

The US Court of Appeals for the Eighth Circuit upheld the sale in a 2022 ruling, holding that Minnesota law doesn’t recognize a private property interest in surplus equity in the tax-foreclosure context. It cited the Supreme Court’s 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.

Tyler seeks to distinguish Nelson from her case, arguing it’s based on a different law from a different state, and that New York’s law provided homeowners with a way to claim the sales surplus.

Several groups filing amicus briefs in support of Tyler said the tax sale process can disproportionately affect older adults, as well as disabled, lower-income, and minority populations.

William Alvarado Rivera, senior vice president of litigation for AARP Foundation, described home-ownership as “the lynchpin of well-being for older Americans.”

“They often use their home equity in retirement to finance health care, home maintenance, and other large expenses and as a safety net that could be used to meet unexpected needs,” Rivera said. “For the government to wipe out an entire lifetime of savings to recover a small tax debt is not merely unconstitutional—it is unconscionable.”

The US Chamber of Commerce’s amicus brief in support of Tyler highlighted how a ruling for the county would affect small businesses.

“Whether it’s an electrician or plumber with a mechanic’s lien, or a financial institution with a mortgage, when a county in Minnesota takes an individual’s home they’re also seizing the asset backing those liens,” Tyler S. Badgley of the US Chamber Litigation Center said in an interview.

“Minnesota’s law undermines certainty and property rights generally,” Badgley said. “That means that individuals and businesses are going to be less willing to invest in property, and that the cost of providing loans and services to homeowners will increase because businesses are being forced to take on additional risk.”

Ahead of arguments, Bloomberg Tax solicited a series of insights from outside authors. Herman Katz’s David Wilkes, Taft’s Scott Knudson, and Dorsey & Whitney’s Steven Wells and Nick Bullard examine what is at stake.

Not Revenue-Generating

Hilgart, who’s with the Association of Minnesota Counties, acknowledged that the facts of this case don’t look good for Hennepin County on its face, but said it has a compelling story to tell.

County governments don’t want anyone to lose their homes, he said, while stressing that this isn’t a revenue-generating endeavor for them. Minnesota law encourages counties to sell or use tax-forfeited land to eliminate nuisances and dangerous conditions.

Dealing with these properties is a burden on counties, Hilgart said, noting expenses for cleaning out personal property, remediating mold or asbestos, securing the property so it doesn’t become blighted, and in many cases, demolishing a property due to safety concerns.

“Unlike what petitioners would have you believe, this is not a tax scheme that local governments look to have to get rich,” he said. “Frankly, this is not something we’ve asked for. The state has mandated that we do this because it’s the most cost effective way to do it.”

The court granted the US Solicitor General’s request to participate in oral argument. Tyler will get 25 minutes, the federal government will get 10 minutes, and the county will get 30 minutes.

Christina M. Martin of the Pacific Legal Foundation will argue for Tyler. Assistant to the Solicitor General Erica L. Ross will argue for the federal government. Neal K. Katyal of Hogan Lovells US LLP will argue for the county.

The case is Tyler v. Hennepin Cnty., U.S., No. 22-166, argument 4/26/23.

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