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    The Lawletter Blog

    PROPERTY SCOTUS: Government Cannot Sell House to Recover Unpaid Taxes and Keep the Excess

    Posted by Robert Westendorf on Fri, Oct 27, 2023 @ 13:10 PM

    Lawletter Vol  48 No. 3

    SCOTUS: Government Cannot Sell House to Recover Unpaid Taxes and Keep the Excess

     Robert Westendorf—Research Attorney

          Ninety-four-year-old Geraldine Tyler lived in a condominium for more than a decade before moving to a senior community in 2010. Tyler v. Hennepin County, 143 S. Ct. 1369, 2023 U.S. LEXIS 2201, at *5-6 (May 25, 2023). Nobody paid the property taxes on the condo, and by 2015, $15,000 in unpaid taxes and penalties was owed. 2023 U.S. LEXIS 2201, at *6. Hennepin County seized the property and sold it for $40,000, thus extinguishing the $15,000 debt. If this had happened in one of 36 states, Tyler would have gotten the excess $25,000 back. Id. at *14. However, when property is sold due to the failure to pay taxes in Minnesota, proceeds in excess of the tax debt remain with the county. Id. at *5.

          Ms. Tyler brought suit, alleging violations of the Takings Clause of the Fifth Amendment and the Excessive Fines Clause of the Eighth Amendment. Id. at *6. The lower courts ruled against Ms. Tyler. The Supreme Court reversed. Id. at *6-22. Writing for a unanimous court, Chief Justice Roberts determined that Ms. Tyler had standing. Id. at *8. The Court then stated that the question was whether the $25,000 is “property under the Takings Clause, protected from uncompensated appropriation by the State.” Id. at *9. In determining what is property, the Court would look to traditional property law principles, historical practice, and the Court’s precedents. Id.

          Beginning with the Magna Carta, there was a principle that the government cannot take more from a taxpayer than what is owed, and this principle continued throughout English history and the early history of America. Id. at *10-11. An Act of Congress and State laws said the government could seize and sell only as much land as was needed to collect the taxes owed. Id. at *12. Hennepin County identified three states that considered property entirely forfeited for failure to pay taxes, but two of those laws were short-lived, and there is no evidence that Louisiana’s law was enforced. Id. at *14.

          Precedent also cut against the County’s position. When a taxpayer had an unpaid tax bill for $170.50, and the federal government had seized the property and kept it for itself at a value of $1,100, the Court held the taxpayer was entitled to a surplus because withholding the surplus would violate the Fifth Amendment. Id. at *16 (citing United States v. Lawton, 110 U.S. 146, 149-50 (1884)). The County cited Nelson v. City of New York, 352 U.S. 103 (1956), where New York City foreclosed on properties for unpaid water bills. 2023 U.S. LEXIS 2201, at *16. The ordinance gave owners time to ask for the surplus from any tax sale. Id. There was no takings clause violation, because the ordinance did not completely stop an owner from getting the surplus back. Id. at *17 (citing Nelson, 352 U.S. at 110). By contrast, Minnesota’s scheme “provides no opportunity for the taxpayer to recover the excess value.” Id.

          The Court also examined how Minnesota recognizes in nearly every other context that a property owner is entitled to surplus in excess of her debt. Id. at *18. “Minnesota may not extinguish a property interest that it recognizes everywhere else to avoid paying just compensation when it is the one doing the taking.” Id. at *19.

          Finally, the County argued that Tyler constructively abandoned her home by failing to pay her taxes. Id. at *19. But the County had pointed to no case where failure to pay property taxes was sufficient to constitute abandonment. Id. at *20. Minnesota’s forfeiture scheme had nothing to do with abandonment; it does not care about the taxpayer’s use of the property but only cares about whether taxes were paid. Id. at *21. That was no abandonment at all. Id.

          Chief Justice Roberts concluded that “[t]he taxpayer must render unto Caesar what is Caesar’s, but no more.” Id. at *22. Since the Court concluded that a taking under the Fifth Amendment was plausibly alleged, they did not decide the Eighth Amendment question. Id.

          Justice Gorsuch wrote a concurring opinion that Justice Jackson joined, where he suggested there was an excessive fines clause issue. Id. Gorsuch explained why he disagreed with the district court’s analysis of the issue and concluded that statutes similar to the one at issue here are “fines by any other name,” and thus subject to the Excessive Fines Clause. Id. at *22-25.

    Topics: property tax, SCOTUS

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