Supreme Court Decides to Hear Case Challenging State Law Empowering Government to Seize Entire Value of a House to Pay Much Smaller Property Tax Debt

On Friday, the Supreme Court decided to hear a case challenging the constitutionality of a Minnesota state law empowering local governments to seize the entire value of a property in order to pay off a much smaller delinquent property tax debt. The property owner in the case—93-year-old widow Geraldine Tyler—argues that this kind of uncompensated seizure of home equity violates the Takings Clause of the Fifth Amendment, which requires government to pay “just compensation” anytime it takes private property, and the Excessive Fines Clause of the Eighth Amendment.

The case has important implications beyond Minnesota. Ten other states have laws that allow similar “home equity theft.” In addition, the case might help resolve the longstanding debate over whether  property rights under the Takings Clause are purely a product of state law, and therefore subject to elimination by state legislation.

The Pacific Legal Foundation, the public interest law firm representing Tyler, has a helpful summary of the facts:

As an elderly widow living alone, Geraldine Tyler was doing just fine in the one-bedroom condo she owned in Minneapolis. That is, until 2010, when a rise in neighborhood crime and frightening incidents near her home alarmed Geraldine and her family and prompted her hasty move to a safer area, where she rented an apartment. 

Once Geraldine moved, she could no longer afford the property taxes on her condo in addition to the rent on her apartment. The taxes piled up, and Tyler accrued a $2,300 debt. In 2015, when the total tax debt, including penalties, interest, and fees, was $15,000, Hennepin County, Minnesota, seized the condo and sold it one year later for $40,000. Instead of keeping the $15,000 it was owed and refunding Geraldine the sale surplus, the county kept all of the $40,000.  

The US Court of Appeals for the 8th Circuit ruled for the government, concluding that Tyler had no constitutional  property right in her home equity because property rights are ultimately a product of state law, and the Minnesota state legislature had abolished the rights in question by passing a statute eliminating them:

Whether a property interest exists “is determined by reference to existing rules
or understandings that stem from an independent source such as state law.” Phillips
v. Wash. Legal Found., 524 U.S. 156, 164 (1998) (internal quotation omitted). We
therefore look to Minnesota law to determine whether Tyler has a property interest
in surplus equity.

Tyler argues that Minnesota recognizes a common-law property interest in
surplus equity in the tax-forfeiture context. She relies on an 1884 decision of the
Minnesota Supreme Court, Farnham v. Jones, 19 N.W. 83 (Minn. 1884), which
addressed an 1881 Minnesota tax-collection statute….

We conclude that any common-law right to surplus equity recognized in Farnhamhas been abrogated by statute. In 1935, the Minnesota legislature augmented its tax-forfeiture plan with detailed instructions regarding the distribution of all “net proceeds from the sale and/or rental of any parcel of forfeited land.” 1935 Minn. Laws, ch. 386, § 8. The statute allocated the entire surplus to various entities but allowed for no distribution of net proceeds to the former landowner. The necessary implication is that the 1935 statute abrogated any common-law rule that gave a former landowner a right to surplus equity.

The court goes on to conclude that current Minnesota tax foreclosure law is similar to the 1935 statute in stripping property owners’ rights to surplus home equity.

A recent Sixth Circuit ruling in a similar home equity theft case effectively highlighted the flaw in this reasoning:

True, the federal “Constitution protects rather than creates p