Local Governments Escape Ruling that Could Have Upended Property Tax Laws

A Minnesota county violated the Fifth Amendment when it sold and kept the excess proceeds from an elderly woman’s home, the U.S. Supreme Court ruled Thursday in a unanimous decision.

“A taxpayer who loses her $40,000 house to the state to fulfill a $15,000 tax debt has made a far greater contribution to the public fisc than she owed,” Chief Justice John Roberts wrote in the opinion. “The taxpayer must render unto Caesar what is Caesar’s, but no more.”

The case, Tyler v. Hennepin County, centered on how much autonomy state governments have regarding property that is seized lawfully from owners who are delinquent on their taxes. The Fifth Amendment specifies that governments cannot take private property without justly compensating its owner. So the question was whether Hennepin County improperly took the profits it made from selling the woman’s house.

In Roberts’ decision, the court blocked states from allowing counties to keep surplus funds from the homes they sell after residents fail to pay property taxes. 

“The ultimate decision is that only the taking of surplus proceeds is a violation of the Fifth Amendment,” said Ted Seitz, an attorney at Dykema Law Offices, which filed an amicus brief in support of Hennepin County on behalf of the Michigan Association of Counties and the Michigan Association of County Treasurers. “If there is a path for those with an interest in a foreclosed property to claim those surplus proceeds, that is constitutional.”

In other words, it remains constitutional for states, such as Michigan and Connecticut, to keep the remaining equity if they still allow a property owner to claim the excess proceeds for a certain amount of time following the sale. 

The ruling has local governments nationwide breathing a sign of relief. The decision focuses on the surplus proceeds as the taking, not the property. Had the court ruled that the property seized was the taking, “that would have been pretty big,” said Seitz. “That would have been a bomb going off” in local government finances.

Tyler v. Hennepin County concerned a one-bedroom condominium in Minneapolis that Geraldine Tyler, now 94 years old, purchased in 1999 and lived in for more than a decade. In 2010, according to her brief, “she left her home out of concern for her health and safety and moved to an apartment building for seniors in a safe and quiet neighborhood.” Although she continued to pay her property taxes on time for a while, she stopped paying them starting in 2011.

By 2015, Tyler owed $2,300 in taxes on the condominium plus nearly $12,700 in fees and interest. Hennepin County seized her home, sold it for $40,000, paid off her tax debt and then kept the $25,000 in remaining equity. 

Tyler sued the county in 2019, arguing that Hennepin County violated the takings clause when it seized her condominium and kept the surplus. The clause states that "private property shall not be taken for public use, without just compensation." Her brief to the Supreme Court also argued the county’s actions violated the excessive fines clause in the Eighth Amendment. 

Lower courts have sided with the government, noting that there was “adequate notice” to the property owner before the sale. But ultimately, the justices rejected that argument and focused instead on the takings clause. 

“Tyler’s claim that the county illegally appropriated the $25,000 surplus constitutes a classic pocketbook injury sufficient to give her standing,” Roberts wrote. “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.’”

The chief justice went on to write that Minnesota law itself recognizes in many ways that a property owner is entitled to the surplus in excess of her debt. The opinion also rejected the county’s claim that Tyler abandoned her property and therefore a right to the surplus when she stopped paying her property taxes. “Minnesota’s forfeiture law is not concerned about the taxpayer’s use or abandonment of the property, only her failure to pay taxes,” Roberts wrote. “The County cannot frame that failure as abandonment to avoid the demands of the Takings Clause.” 

In a concurring opinion Justice Neil Gorsuch suggested that the Eighth Amendment’s prohibition against excessive fines was violated along with the takings clause. Justice Ketanji Brown Jackson signed his concurrence. “Economic penalties imposed to deter willful noncompliance with the law are fines by any other name,” Gorsuch wrote. “And the Constitution has something to say about them: They cannot be excessive.”