Supreme Court rules against government greed in foreclosures

 Red States:

The Supreme Court ruled 9-0 on Thursday in favor of a 94-year-old widow in her battle with a rapacious Hennepin County, MN, government which sold her home for a small tax debt and pocketed the change.

The story starts in 1999 when Geralidein Tyler bought a condo in Minneapolis. In 2010, she decided, for a variety of reasons, to move into a retirement community. The financial strain of paying a mortgage, condo fees, and rent on her retirement apartment caused Tyler to fall behind on her property taxes. By 2015, she owed $2,300 in back taxes, onto which the county had slapped interest and penalties, bringing the total to $15,000. The county confiscated Tyler’s title to the property and sold it at a tax auction for $40,000. The county applied $15,000 of the proceeds to Tyler’s debt and kept the rest. They reasoned that once the county confiscated her title, she no longer owned the property and was not entitled to anything. This left Tyler on the hook for a $50,000 mortgage and $12,000 in condo fees.

Equity Theft

Tyler’s case is not unusual. A dozen states permit city and county governments to sell the property at auction to settle tax claims and pocket the difference.

Tyler sued, making two claims. First, she said that the county confiscating the proceeds in excess of the back taxes and fees was a taking prohibited under the Fifth Amendment. She also claimed that fines and fees for delinquent taxes that ballooned a $2,300 bill to $15,000 violated the Eighth Amendment prohibition on “excessive fines.” The district court dismissed the case, reasoning that Tyler had no claim to the proceeds under Minnesota law and no grounds to challenge the fines and fees.

She appealed to the Eighth Circuit, which gave the case a bum’s rush. Then Tyler turned to the Supreme Court. Thursday, they delivered a resounding 9-0 verdict in Tyler’s favor.

Writing for a unanimous court, Chief Justice John Roberts began by addressing – and rejecting – the county’s argument that Tyler lacked a legal right, known as standing, to bring her takings claim at all. The county contended that Tyler was not actually harmed by the sale of her condo because she may have also had a mortgage for $49,000 on the property, as well as a $12,000 lien for unpaid homeowners’ association fees.

The justices dismissed the county’s protests as speculation, noting that the county had never actually provided evidence of either the mortgage or the lien. But in any event, Roberts continued, “Tyler still plausibly alleges a financial harm: The County has kept $25,000 that belongs to her.” If she had received that money, Roberts wrote, Tyler could have used it to pay down some of the debts linked to the condo.

Turning to the merits of Tyler’s challenge, Roberts framed the question before the justices as whether the $25,000 surplus remaining after Tyler’s condo was sold to pay her tax debt to the county is “property” for purposes of the takings clause. The county pointed to a 1935 state law that strips an owner who falls behind on her property taxes of her interest in the property. Therefore, the county argued, there was no property for the government to take.

The court disagreed, stressing that “property rights cannot be so easily manipulated.” Indeed, Roberts observed, even Minnesota itself “recognizes that in other contexts a property owner is entitled to the surplus in excess of her debt.” Although the county can sell Tyler’s condo to recover the $15,000 that she owes it, Roberts wrote, it cannot “use the toehold of the tax debt to confiscate more property than was due.” By keeping the $25,000, Roberts concluded, the county “effected a ‘classic taking in which the government directly appropriates private property for its own use.’”

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The Supreme Court got this one right.   It looks like a clear violation of the taking clause of the Constitution.  The equity in a home belongs to its owner and not to taxing authorities.