On May 25, 2023, the United States Supreme Court issued a unanimous decision in Tyler v. Hennepin County ruling in favor of a 94-year-old property owner from Minnesota who refused to accept the government’s alleged right to sell her home for unpaid real estate taxes and keep the excess proceeds above the amount necessary to pay the taxes. The challenge was not to the right of the government to sell property for unpaid taxes, but about who gets to keep the sale proceeds in excess of a tax debt?
An understanding of how Hennepin County Minnesota collects unpaid real estate taxes is important to understand the issue before the Supreme Court. Like many municipalities or Counties, Hennepin County imposes an annual tax on real estate property. If the real estate taxes are not paid within one year of when they are due, the County can obtain a judgment against the property owner which results in title (partial title interest) to the property being transferred to the State. The property owner then has three years to redeem the property and regain title by paying all the taxes and late fees. During the redemption time period, the property owner can continue to live in the home. However, after the three years expires, the State owns the property, the tax debt is extinguished, and the State can either keep the property for a public use or sell it. If the property is sold by the State, the proceeds of the sale, no matter how much the property is sold for, gets split among the County, municipality, and school district – the owner gets none of the excess proceeds.
In the case before the Supreme Court, a 94-year-old woman was no longer able to live in her condominium, so she moved into a senior community. After she moved out, she was not able to pay her real estate taxes on the condominium and the real estate taxes, with interest and penalties, accumulated to about $15,000. Using the procedures outlined above, Hennepin County seized the condominium and sold it for $40,000, extinguishing the $15,000 tax debt. However, the County kept the remaining $25,000 for its own use as allowed under Minnesota law, at least before May 25, 2023!
Ms. Tyler, the condominium owner, did not believe the government should be able to keep the excess funds, only the amount to satisfy the taxes she owned. Ms. Tyler filed suit alleging claims under the Takings Clause of the Fifth Amendment and the Excessive Fines Clause of the Eighth Amendment of the United States Constitution. This article will focus on the Taking Clause Claim under the Fifth Amendment. Ms. Tyler lost at the District Court and Appellate levels but was successful in convincing the Supreme Court to take her case.
The Takings Clause of the Fifth Amendment of the United States Constitution provides that “private property [shall not] be taken for public use, without just compensation.” An issue often arises when the Government uses the power of eminent domain to take property to build roads, schools, and government buildings. However, the limitation on the Government’s right to take other property is a limitation that needs to be policed. In finding in favor of Ms. Tyler, the Supreme Court held:
The County had the power to sell Tyler’s home to recover the unpaid property taxes. But it could not use the toehold of the tax debt to confiscate more property than was due. By doing so, it effected a “classic taking in which the government directly appropriates private property for its own use.”
In summarizing its decision, the Court stated, “The taxpayer must render unto Caesar what is Caesar’s, but no more.”
How this decision will impact property owners confronted with unpaid real estate taxes will vary from state to state since each state has its own enforcement laws. The Court did not find any problem with the right of the government to sell real estate to collect tax liens, just how the proceeds from the sale are to be allocated. Still, the decision will prevent roughly twelve states from keeping excess funds above what a property owner owes in unpaid property taxes.
Also, I would like to send a special thank you to the Pacific Legal Foundation, who argued this case for Ms. Tyler. The Pacific Legal Foundation is a nonprofit legal organization protecting citizen’s rights from government overreach and abuse. And as you can see, they do a good job!
