Today, in a unanimous decision, the Supreme Court held that local governments cannot take surplus home equity after liquidating delinquent taxpayers’ property to pay their tax bill. Typically, if a property owner is behind on her property taxes, governments will take the property, liquidate it, and use the funds to pay off the tax bill and any accrued fees. Most states then return any remainder back to the property owner. However, Minnesota and 13 other states maintained a practice of greedily pocketing any surplus equity instead of returning it to the rightful property owner.
That is what happened to 94‐year‐old Geraldine Tyler, the plaintiff in Tyler v. Hennepin County. She fell behind on her property taxes, owing $2,700 and another $12,300 in fees. Hennepin County took her property and sold it for $40,000. But instead of returning Ms. Tyler her remaining $25,000, the County took that money for its own use.
The Supreme Court correctly decided that this practice is unconstitutional. Writing for a unanimous Court, Chief Justice John Roberts explained that governments cannot take more property than necessary to satisfy a tax debt.
The crux of this case was whether the $25,000 in equity was in fact Ms. Tyler’s property. The Fifth Amendment prohibits the taking of private property without payment of just compensation, but the Constitution does not define what “private property” is. Courts traditionally look to state law to determine what constitutes “private property.”
Hennepin County had argued that an early 20th century Minnesota statute removed any property right Ms. Tyler might have had. That statute declared that after a tax foreclosure, any remaining equity became the property of the local government. The county argued that under this statute, Ms. Tyler no longer owned the remaining equity, so the county could take it without triggering the just compensation requirement.
The Supreme Court brushed this argument away, explaining that although “[s]tate law is one important source” of the definition of property, it “cannot be the only source.” Otherwise, states could take whatever property they wanted without paying for it, simply by defining it away. If successful, such a tactic would make the Fifth Amendment meaningless.
Moreover, the American legal system has long required that governments take no more property than required to pay a tax debt, a tradition that can be traced all the way back to early English common law and Magna Carta. In the 13th century, King John promised that the government would take no more property than was required to pay debts. This principle continued throughout English and early American common law, and Minnesota recognized this principle up to at least 1884. And as the Supreme Court explained—and as Cato discussed in our amicus brief in support of cert in this case—Minnesota recognized a debtor’s property right to the remaining equity in her property in every situation other than tax liens. It was only when a debtor owed taxes that the government said the debtor lost her property right in her equity.
The idea that a property owner loses the right to her property because she fell behind on her taxes is contrary to the Constitution, Magna Carta, American tradition, and common sense. Thankfully, the Supreme Court unanimously recognized that today. In merry England, Robin Hood stood up to the Sheriff of Nottingham’s unfair taxation, and Magna Carta ended some of those practices. Here, Pacific Legal Foundation stood up to local governments’ home equity theft, and today the Supreme Court ended that practice. Three Cheers for Chief Justice Roberts and the unanimous Supreme Court.