The U.S. Supreme Court agreed to hear the case of Geraldine Tyler, a 94-year-old widow who had her entire home’s equity confiscated after she failed to pay $2,300 in property taxes. Although the case stems from a property tax dispute in Hennepin County, Minnesota, it could have nationwide implications for real estate and the Bill of Rights.
“Home equity is property protected by the Constitution,” said Christina Martin, senior attorney at the Pacific Legal Foundation, which is representing Geraldine. “When the government takes more than it is owed in taxes, that’s home equity theft. We are thrilled the Supreme Court will hear this case, which we hope will end unconstitutional home equity theft across the country.”
After falling behind on her property taxes for her condo, Geraldine owed Hennepin County, Minnesota around $2,300 in taxes. Failure to pay had also amassed $12,700 in additional penalties, interest, and other costs. To collect her debt, in 2015, the county seized Geraldine’s home and foreclosed on it. Even though the condo had been valued at $93,000, the county sold it for a mere $40,000.
In most states, local governments would use the proceeds to pay off what was owed and then return the remainder to their rightful owner. But in Minnesota, the county instead kept every penny for itself. That included not only the $15,000 Geraldine owed, but also the remaining $25,000—money Hennepin County had no right to take.
Geraldine sued. Critically, Geraldine is not contesting the ability of the county to seize her home or foreclose on it for unpaid taxes. Instead, she is challenging the county’s power to confiscate and keep more than what she owes. Nevertheless, both a federal district court and the Eighth U.S. Circuit Court of Appeals have sided with the county, which claimed Geraldine does not have a “property interest in surplus equity” from the sale of her home.
Unfortunately, what happened to Geraldine is not an isolated incident. According to the Pacific Legal Foundation, at least a dozen states allow the government to take and keep the entire value of a foreclosed property beyond what is owed. In some states, local government can even sell tax liens to private investors, further incentivizing even more abusive practices.
Nationwide, local governments and private investors have taken 7,900 homes, with homeowners losing at least $777 million of their life savings. On average, a homeowner lost 86% of their equity—the equivalent of “losing 26 years’ worth of payments on a 30-year mortgage.”
Backing Geraldine in her fight is the AARP. In its amicus brief, the AARP notes that tax-foreclosure schemes like Minnesota’s have a “devastating and disproportionate impact on the financial security of older adults.” After all, a home is often a person’s most valuable financial asset, representing a lifetime of hard work and thrift. So the consequences for losing a home’s entire equity cannot be overstated. That’s especially true for older Americans, who have higher rates of physical and cognitive disabilities and are more likely to live on modest, fixed incomes. In turn, those conditions make it more likely for older Americans to be victims of tax foreclosures.
But as PLF argued in its cert petition, “debtors have a deeply rooted right to be paid for their equity in property seized to pay a debt,” a protection that spans more than 800 years, all the way back to Magna Carta. That means Minnesota’s tax-foreclosure law and the others like it are doubly unconstitutional.
First, by grabbing the surplus from a tax-foreclosure sale, local governments violate the Takings Clause of the Fifth Amendment, which prohibits taking private property without “just compensation.” As the Supreme Court itself recognized more than 40 years ago, under the Fifth Amendment, state lawmakers “may not transform private property into public property without compensation.”
Second, the practice infringes on the Eighth Amendment’s ban on excessive fines; after all, keeping the proceeds beyond what was properly owed, is, by its very definition, excessive. Although the Excessive Fines Clause had been dormant for decades, that changed in 2019. In Timbs v. Indiana, the court sided with Tyson Timbs, who was convicted on drug charges and paid $1,200 in court fees and costs, but still had his $42,000 Land Rover seized and forfeited. Represented by the Institute for Justice, Tyson argued that the Excessive Fines Clause applied to states and localities, not just the federal government. The Supreme Court unanimously agreed, giving new vigor to that constitutional safeguard.
“For good reason, the protection against excessive fines has been a constant shield throughout Anglo-American history,” the late Justice Ruth Bader Ginsburg wrote for the court. “Exorbitant tolls undermine other constitutional liberties.”
In another IJ case that could further extend Timbs, the High Court is currently mulling whether to hear the case of Monica Toth. An 82-year-old grandmother, Monica had half of her bank account confiscated by the IRS for failing to file a one-page form. The IRS’s demand was 54 times what Monia owed in penalties and outstanding taxes—a clearly excessive fine. But federal courts rejected that argument, and instead agreed with the IRS, which claimed that it didn’t impose a fine, but a “civil penalty.”