Home Seized for Property Taxes: U.S. Supreme Court Case

Geraldine Tyler, 94, who had her home seized by the government over a property tax debt (Courtesy of Pacific Legal Foundation)

by Billy Binion

Geraldine Tyler is a 94-year-old woman spending the twilight of her life in retirement, as 94-year-olds typically do. But there isn’t much that’s typical about it.

Tyler has spent the last several years fighting the government from an assisted living facility after falling $2,300 behind on her property taxes. No one disputes that she owed a debt. What is in dispute is if the government acted constitutionally when, to collect that debt, it seized her home, sold it, and kept the profit.

If that sounds like robbery, it’s because, in some sense, it is. But it’s currently legal in at least 12 states across the country, so long as the government is doing the robbing.

In 2010, Tyler moved out of her Minneapolis condo, which she owned, in response to a series of local incidents that made her feel unsafe. That included a nearby shooting. She relocated to an apartment in a different neighborhood but struggled to afford both her rent and the property taxes on her condo, accruing that $2,300 sum.

The vast majority of what Tyler ended up owing, however, was not the property tax itself. It was the additional $13,000 in penalties, interests, and fees added by the government, upping her total to about $15,000—more than a 550 percent increase.

She didn’t have the $2,300, much less the $15,000. So the state foreclosed on the condo and sold it to satisfy the debt. That’s to be expected. What Tyler didn’t expect: After selling the property for $40,000, the government pocketed the remaining $25,000 instead of putting it back in Tyler’s hands. This despite no party claiming she owed anywhere near a $40,000 debt.

What the state took had little to do with the amount of debt itself. Had Tyler’s condo been valued at, say, $300,000, it would have proceeded the same way. The government would have just been quite a bit richer.

Which is what happened to Tawanda Hall of Oakland County, Michigan, when she, too, accrued a property tax debt. Hall, who lived in the house with her husband and children, set up a payment plan with the local authorities. She eventually fell $900 behind schedule. The total bill—after penalties, interests, and fees—came out to $22,642.

Not unlike Tyler, the government then seized the home, sold it to collect the debt, and kept the profit. Unlike Tyler, the Halls’ home was worth more than $300,000.

The state kept the change. It totaled more than $286,000.

What also sets Tyler and Hall apart is that they’ve had different fortunes in front of federal judges. But that may change for victims of home equity theft everywhere as one received notice on Friday that she will get to make her case in front of the U.S. Supreme Court.

Targeting the Most Vulnerable 

It is standard practice for governments to seize properties whose owners fail to pay their taxes. People at city council meetings across the U.S. will debate just how much those taxes should be—they vary widely—or how much local treasury departments should be tacking on in interests and penalties for those who fall behind.

But neither Tyler nor Hall have argued against such a taking.

“We agree that the government can seize the property to collect a debt,” says Christina M. Martin, a senior attorney at the Pacific Legal Foundation who has represented both women. “What it can’t do is take more than it’s owed.”

Whether or not you’ll meet such a fate, should you fall behind on your taxes, depends on where you live. Among the states that allow home equity theft—when the government not only satisfies the debt but also keeps the profit—are Oregon, Arizona, Colorado, Nebraska, South Dakota, Minnesota, Illinois, Alabama, New Jersey, New York, Massachusetts, and Maine. That list used to be longer. Several states have abolished it.

But the process by which the government steals home equity also looks different in those states that permit it. “In Nebraska…people are shocked about how the law actually operates,” says Jennifer Gaughan, chief of legal strategy at Legal Aid of Nebraska, which has represented clients similarly situated to Tyler and Hall. In that state, people who fall behind on their property taxes are bought out, without their knowledge, by private investors. They receive no correspondence.

That changes after three years go by, when they finally get notice in the mail. Included in that letter is that they have 90 days to satisfy the tax burden, the 14 percent interest, and additional fees. It’s a Herculean task for individuals and families to accomplish when considering they were struggling to pay the original debt, much less a multiyear accumulation and the associated penalties. If they fail to pay within the short period, the county treasurer gives the deed to the private investor, who then takes the home, sells it, and keeps the change.

Nebraska isn’t the only state with an unsavory public-private partnership, which is a distinguishing factor in how states execute home equity theft. Arizona and Illinois, for example, operate similarly, allowing investment companies to do the government’s work for them. The prize is someone’s home equity. That’s contrasted with states like Minnesota, where Tyler lives, which sees stolen equity deposited into government coffers.

“It’s usually elderly people…people who own their homes outright who don’t have a mortgage, and there’s usually some kind of intervening situation,” says Gaughan. “It’s not just poverty. It’s illness, or something happens in their lives….And then they don’t have notice of it. And then [the home] is being taken.”

In other words, home equity theft targets the most vulnerable people simply by the nature of how it operates. If you fall behind on your taxes, then it stands to reason that you are low-income, or dealing with a life-altering event, or both. Someone unable to pay a tax debt is unlikely to be able to pay that same debt plus the litany of fines and fees that expand it multiple times over. And someone in such a situation will be even more crippled when their last remaining asset is taken from them—their house—and the profits kept. If you didn’t have enough money in the bank to pay your taxes, then you probably don’t have enough money in the bank to buy a new house.

“I had one person tell me they were suicidal because they lost everything they worked for,” says Martin. “It’s hard enough to lose your home, but when you lose all your life savings, that’s just beyond devastating. It’s completely shocking. It often destroys people.”

A Divide in the Judiciary

At the core of home equity theft cases is the Takings Clause of the Fifth Amendment to the U.S. Constitution. “Nor shall private property be taken for public use,” it reads, “without just compensation.” It would seem fairly straightforward.

It has not been.

Tyler’s case arrived before the U.S. Court of Appeals for the 8th Circuit in October 2021. The question before the judges: Was it constitutional when the government seized the 94-year-old’s Minnesota condo valued at $93,000, sold it for about half of that, and then kept every last cent, all to satisfy a $15,000 debt?

The answer they arrived at was yes. “Where state law recognizes no property interest in surplus proceeds from a tax foreclosure-sale conducted after adequate notice to the owner,” wrote Judge Steven Colloton, “there is no unconstitutional taking.”

In other words, according to the 8th Circuit, Tyler—and the many people also in her shoes—simply have no recourse when the government profits off of their poverty. “In every other debt collection context, the debt collector is only allowed to take what is owed, plus the cost of collecting the debt. But here, the government gets to tack on penalties, interests, fees, and then they get to take everything that’s left over after that?” asks Martin. “That can’t be right.”

Maybe it can’t be. Hall—the Michigan resident who saw almost $300,000 taken from her in excess—also sued. She wishes it didn’t have to go that far. “[I was] running around trying to find out who can I talk to, what can I do to stop this from happening?” Hall tells Reason. “There was really no one there to work with us or help us or even tell us what route to go.” Her case fed into the U.S. Court of Appeals for the 6th Circuit, and she was joined by seven other parties who had also met that grisly fate. Would the judges rule similarly?

They did not, and their opinion spared no prisoners. “The Michigan statute is not only self-dealing: it is also an aberration from some 300 years of decisions by English and American courts, which barred precisely the action that Oakland County took here,” wrote Judge Raymond Kethledge. “The government may not decline to recognize long-established interests in property as a device to take them.”

Hall was lucky, although that word feels perverse here. The court ruled that her suit had been prematurely dismissed, and it resuscitated her claim. But she still has to go before a trial court and win to get her six figures in equity back. “We all have problems sometimes and fall behind,” Hall says. “To take someone’s home…to have them homeless because of a little late payment I think is unfair.”

There are some things she cannot get back, however. Her husband, Prentiss, had pneumonia when they lost their home. He rushed back to his job after the government took the entire value of their house—depriving them of their life savings, in other words—though he was still too sick to be there. At work, he fell on his head, sustained a severe brain injury, and died.

The Highest Court Agrees To Weigh In

For the last several years, it has been unclear if Tyler will see an end to her case or if her legal challenge—with the bureaucratic hurdles that prolong such disputes for years—will outlive the 94-year-old.

She got closer on Friday, when the U.S. Supreme Court agreed to hear her appeal, giving the highest rung of the judiciary the opportunity to end home equity theft for everyone.

“This case identifies a pressing national problem that has festered for decades in the lower courts,” reads her petition. “This Court should put the controversy to rest.”

Tyler is not alone in her challenge. She has attracted the support of advocates of diverse professional affiliations and backgrounds. Those who have filed briefs in support of her include the National Taxpayers Union Foundation, the Howard Jarvis Taxpayers Association, the Wisconsin Realtors Association, AARP and the AARP Foundation, the Buckeye Institute, the Competitive Enterprise Institute, and the Cato Institute, among others. There aren’t many things that unite people these days. Perhaps outright government theft meets that bar.

“We’re not asking for anything unusual here,” says Martin, who will be arguing the case in front of the high court. “We’re asking that the government not [receive] self-dealing, preferential treatment that allows them to just take a massive windfall, usually at the expense of the most vulnerable people.”

Should Tyler win, it would be a fitting metaphor for justice: a 94-year-old woman who had everything taken from her and who, in the last big fight of her life, toppled that giant.