SCOTUS: Tyler v. Hennepin County - property 'theft’ dispute over unpaid taxes

Supreme Court takes up property 'theft’ dispute over unpaid taxes​

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The bottom line takeaway from the oral argument is that Tyler will almost certainly win her case, and it isn't going to be close. ...

Multiple justices were clearly appalled at County's argument that there is no taking in this situation no matter how great the disproportion between the tax delinquency and the amount of money the government gets by seizing the property. For example, Justice Elena Kagan asked whether there are "any limits" here and wanted to know whether there is a taking in a situation where there is "$5,000 tax debt, $5 million house, take the house, don't give back the rest." She wasn't happy when the County's attorney Neal Katyal ultimately conceded that, under his reasoning, there would be no taking here, and the government could keep the entire $5 million.

Similarly, Justice Gorsuch asked whether there's a taking if "the government takes a million dollar property…. for a modest amount owed to the government, a $5 amount." Katyal said there would not be a taking. Gorsuch was not a happy camper.

The justices also had little sympathy for the argument—endorsed by the lower court decision—that there is no taking because state law had defined the surplus equity as the county's property, thereby extinguishing the owner's rights. Justice Gorsuch pushed Katyal to admit that "it can't be pure positive law, state law that governs what is property, right?" Katyal admitted that Gorsuch was right. Along the same lines, Chief Justice John Roberts suggested that "there is an irreducible core of what constitutes property" that states cannot define away, and that core may come from "the Takings Clause itself."

I think the answer to this issue is that the original meaning of the Takings Clause is rooted in natural rights theories of property, and natural law—not state law—is the ultimate source of those rights, though states can regulate the rights, and have some role in defining their precise boundaries.

I don't know exactly how the Court is going to handle this crucial question. One possibility is that they might follow the Sixth Circuit's ruling in a similar case, which concluded that states cannot define away "traditional property interests long recognized under state law." But I am confident the justices will reject the notion that the state can just redefine property rights however it wants. As Chief Justice Roberts suggested, under the County's position in this case, there wouldn't be much point to the Takings Clause.

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Supreme Court sides with grandmother who lost home, equity because of back taxes​

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Held: Tyler plausibly alleges that Hennepin County’s retention of the excess value of her home above her tax debt violated the Takings Clause. Pp. 3–14.

(a) Tyler’s claim that the County illegally appropriated the $25,000 surplus constitutes a classic pocketbook injury sufficient to give her standing. TransUnion LLC v. Ramirez, 594 U. S. ___, ___. Even if there are debts on her home, as the County claims, Tyler still plausibly alleges a financial harm, for the County has kept $25,000 that she could have used to reduce her personal liability for those debts. Pp. 3–4.

(b) Tyler has stated a claim under the Takings Clause, which provides that “private property [shall not] be taken for public use, without just compensation.” Whether remaining value from a tax sale is property protected under the Takings Clause depends on state law, “traditional property law principles,” historical practice, and the Court’s precedents. Phillips v. Washington Legal Foundation, 524 U. S. 156, 165–168. Though state law is an important source of property rights, it cannot be the only one because otherwise a State could “sidestep the Takings Clause by disavowing traditional property interests” in assets it wishes to appropriate. Id., at 167. History and precedent dictate that, while the County had the power to sell Tyler’s home to recover the unpaid property taxes, it could not use the tax debt to confiscate more property than was due. Doing so effected a “classic taking in which the government directly appropriates private property for its own use.” Tahoe-Sierra Preservation Council, Inc. v. Tahoe Regional Planning Agency, 535 U. S. 302, 324 (internal quotation marks omitted).

The principle that a government may not take from a taxpayer more than she owes is rooted in English law and can trace its origins at least as far back as the Magna Carta. From the founding, the new Government of the United States could seize and sell only “so much of [a] tract of land . . . as may be necessary to satisfy the taxes due thereon.” Act of July 14, 1798, §13, 1 Stat. 601. Ten States adopted similar statutes around the same time, and the consensus that a government could not take more property than it was owed held true through the ratification of the Fourteenth Amendment. Today, most States and the Federal Government require excess value to be returned to the taxpayer whose property is sold to satisfy outstanding tax debt.

The Court’s precedents have long recognized the principle that a taxpayer is entitled to the surplus in excess of the debt owed. See United States v. Taylor, 104 U. S. 216; United States v. Lawton, 110 U. S. 146. Nelson v. City of New York, 352 U. S. 103, did not change that. The ordinance challenged there did not “absolutely preclud[e] an owner from obtaining the surplus proceeds of a judicial sale,” but instead simply defined the process through which the owner could claim the surplus. Id., at 110. Minnesota’s scheme, in comparison, provides no opportunity for the taxpayer to recover the excess value from the State.

Significantly, Minnesota law itself recognizes in many other contexts that a property owner is entitled to the surplus in excess of her debt. If a bank forecloses on a mortgaged property, state law entitles the homeowner to the surplus from the sale. And in collecting past due taxes on income or personal property, Minnesota protects the taxpayer’s right to surplus. Minnesota may not extinguish a property interest that it recognizes everywhere else to avoid paying just compensation when the State does the taking. Phillips, 524 U. S., at 167. Pp. 4–12.
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Today the Supreme Court unanimously ruled that such practices qualify as takings requiring the payment of "just compensation" under the Takings Clause of the Fifth Amendment. Importantly, it also concluded that state law is not the sole source of the definition of property rights under the Takings Clause, and therefore state governments cannot seize private property without compensation simply by redefining it as the state's property.

The unanimous nature of the decision is noteworthy. Takings issues often split the justices along traditional right-left lines. In this case, however, the oral argument made clear that both conservative and liberal justices were highly skeptical of the government's position. An ideologically diverse range of groups also filed amicus briefs supporting Tyler. This broad agreement may be because the case combines traditional conservative and libertarian interest in property rights with left-liberal solicitude for the interest of the poor, the elderly, and minorities—groups that are particularly likely to be victimized by home equity theft.

While the Supreme Court decision left some notable issues unresolved, it nonetheless sets a significant precedent. Most obviously, the jurisdictions that currently authorize home equity theft—some twelve states and the District of Columbia—will no longer be allowed to do so. In addition, the holding that states cannot just redefine property rights at will has important implications for other property rights issues. It makes it harder for states to avoid takings liability.
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In Arizona, citizens can still lose their houses over minuscule tax bills, despite a unanimous 2023 Supreme Court ruling that was supposed to paralyze the practice nationwide.

A disturbing chasm is growing between the letter of the law and the spirit of justice. Christine Searle, a 70-year-old retiree, faces the loss of her home—valued at hundreds of thousands of dollars—over a mere $1,607.68 in back taxes. Sadly, her story is not uncommon in Arizona.
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The situation brings us face to face with the victims of complicated law. Searle's plight is a stark example of everyday people who are often ill-equipped to navigate the complexities of tax law and real estate regulations. And the consequences for an ill-informed action can be life altering. The issue here is not some clerical error—it is the framework of state law.
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In Arizona, Tyler hasn't yet reverberated. But the only real "distinction" between the scheme that was invalidated in Tyler and Arizona law is who reaps the windfall: In Tyler, it was the government. In Arizona, it's the purchaser of the tax lien. But that's hardly a meaningful legal difference. One would think that the attorney general, or the Maricopa County treasurer, would step in and announce that state law can no longer stand up to scrutiny. Indeed, Colorado's Attorney General made such an announcement last year regarding Colorado law after Tyler was issued.
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... . After the Supreme Court's ruling in Tyler, a handful of states—Arizona, Alabama, New York, and New Jersey—created systems that technically abide by the letter of the law but not its spirit, devising complex systems that place the burden on the property owner to fight for their equity back after a seizure.

Meanwhile, a federal lawsuit outlines yet another creative way people are losing equity at the hands of government. In Baltimore, the Edmondson Community Organization (ECO)—a nonprofit dedicated to revitalizing the city's Midtown-Edmondson area—accrued a $2,543 property tax debt. So in 2018, the city auctioned off that lien for $5,115 to a California-based investor, who sold the ECO's building for $139,500. In return, the ECO got a check for the difference between its debt and the lien purchase price: $2,572. In other words, the organization essentially paid six figures to compensate for the $2,543 it owed.
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