by Gary Taylor
United States Supreme Court, May 25, 2023
Ninety-four-year old Geraldine Tyler owned a condominium in Hennepin County, Minnesota, that accumulated $15,000 in unpaid real estate taxes, interest and penalties. Under Minnesota state law, the the County was allowed to seize the condo after three years because of the unpaid taxes. Hennepin County sold the condo for $40,000, and under Minn. Stat. sec. 282.08 the proceeds in excess of the tax debt and the costs of the sale ($25,000) were allowed to be kept by the county and split between the county, the town and the school district. Tyler filed suit, alleging that the County had unconstitutionally retained the excess value of her home above her tax debt in violation of the Takings Clause of the Fifth Amendment and the Excessive Fines Clause of the Eighth Amendment. The District Court dismissed the suit for failure to state a claim, and the Eighth Circuit affirmed. She appealed to the United States Supreme Court.
Standing to sue. The County alleged that Tyler lacked standing to bring the claim because she did not “disclaim the existence of other debts or encumbrances” on her home, namely, a $49,000 mortgage and a lean of $12,000 for unpaid homeowners’ association dues. The County argued that these encumbrances exceeded $25,000 and therefore she had no interest in, and suffered no real financial harm form the sale by the County. The Supreme Court disagreed, observing that in Minnesota a tax sale extinguishes all other liens on a property, so Tyler could have retained the excess and used it to reduce any such remaining liabilities.
Taking. Whether Tyler could claim a taking hinges on whether she had a property interest in the excess value of the condo. To answer this question the Court draws on “existing rules or understandings” about property rights, which includes state law, “traditional property law principles,” “historical practice” and Courts’ precedents. The County reasoned that Tyler had no property interest protected by the Takings Clause because in 1935, the State purported to extinguish that property interest by enacting a law providing that an owner forfeits her interest in her home when she falls behind on her property taxes. However, citing an 1884 Minnesota Supreme Court case, the Court noted that prior to 1935 Minnesota recognized that a homeowner whose property has been sold to satisfy delinquent property taxes had an interest in the excess value of her home above the debt owed. “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.”
The Court went all the way back to the Magna Carta for “the principle that a government may not take from a taxpayer more than she owes.” “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.’” The Court noted that Minnesota was in the minority in seizing excess tax sale proceeds; 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 also noted that Minnesota law recognizes in many other contexts that a property owner is entitled to the surplus in excess of her debt, citing bank foreclosure on a mortgage and the collection of past due taxes on income or personal property as two examples.
The Court rejected the County’s argument that Tyler had no property interest in the surplus because she constructively abandoned her home by failing to pay her taxes. The Court stated that no precedent exists for concluding that a failure to pay taxes is itself sufficient to prove abandonment. “Abandonment requires the ‘surrender or relinquishment or disclaimer of’ all rights in the property.” “It is the owner’s failure to make any use of the property—and for a lengthy period of time—that causes the lapse of the property right…..The County cannot frame [the failure to pay property taxes] as abandonment to avoid the demands of the Takings Clause.”
The Court concluded that 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.”