Late last month, we reported on the case of 94-year-old grandmother Geraldine Tyler, whose Minneapolis condo was sold by Hennepin County in Minnesota for $40,000 to pay off a $15,000 tax debt: 94-year-old Grandmother Fights Home Equity Theft at the U.S. Supreme Court
The kicker was that instead of returning the $25,000 surplus over the amount Geraldine owed the state, Hennepin County decided to keep the whole amount! Even worse, the County’s retention of those funds was entirely in keeping with Minnesota state law, as we reported:
It turns out, as both parties agreed in court, that Minnesota state law provides for just such a result. Pacific Legal [Foundation] reports: “State law allows Minnesota counties to keep such windfalls at the expense of property owners like Geraldine. From 2014 to 2020, 1,200 Minnesotans lost their homes and all of the equity they had invested for debts that averaged 8% of the home’s value.”
Upset at that result, Geraldine sued Hennepin County in federal court:
But, not so fast, said Geraldine Tyler. The Fifth Amendment to the United States Constitution, which trumps state law, says in the “Takings Clause” that “private property [shall not] be taken for public use, without just compensation.”And not only that, the Eighth Amendment to the United States Constitution provide[s]: “Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.”
But the federal district court dismissed Geraldine’s case:
“[T]he United States Supreme Court has unambiguously declined to recognize a former property owner’s ‘fundamental interest in the surplus’ by virtue of her prior ownership of the forfeited property. To the contrary,…[a] former owner has a property interest in the surplus only if a provision of a constitution, statute, or municipal code creates such an interest…[but] Minnesota’s statutory scheme gives the property owner no right to the surplus.”
The court also held that Geraldine’s “excessive fines” argument was without merit because “Minnesota’s tax-forfeiture scheme bears none of the hallmarks of punishment,” and so “the statute does not impose a ‘fine’ within the meaning of the Excessive Fines Clause.”
Geraldine appealed to the U.S. Court of Appeals for Eighth Circuit, but they affirmed the district court’s dismissal, saying that “[w]here state law recognizes no property interest in surplus proceeds from a tax-foreclosure sale conducted after adequate notice to the owner, there is no unconstitutional taking… [and] the governmental unit does not offend the Takings Clause by retaining surplus equity from a sale.”
Geraldine then appealed to the U.S. Supreme Court, who felt the case important enough to hear it, even though “the Court [only] accepts 100-150 of the more than 7,000 cases that it is asked to review each year.”
At oral argument, which you can listen to here, it appeared that the Justices were firmly in Geraldine’s corner, as Amy Howe at the excellent Scotusblog reported: Justices appear likely to side with homeowner in foreclosure dispute.
Earlier today, the Court, in fact, sided with Geraldine. You can review the Court’s opinion here and below.
In it, in a unanimous opinion authored by Chief Justice Roberts, the Court gave short shrift to the Eighth Circuit’s “state law controls” argument:
The Takings Clause does not itself define property…For that, the Court draws on ‘existing rules or understandings’ about property rights…State law is one important source…But state law cannot be the only source. Otherwise, a State could sidestep the Takings Clause by disavowing traditional property interests in assets it wishes to appropriate.
In other words, a state cannot just pass a state statute that lets them take your property without compensation, which is apparently what the County, and the federal district and appeals court thought. Or as the Supreme Court puts it: “The Takings Clause would be a dead letter if a state could simply exclude from its definition of property any interest that the state wished to take.”
So how do we figure out what property is subject to the Takings Clause? The Court answers: “So we also look to traditional property law principles,’ plus historical practice and this Court’s precedents.”
The Court then gives a history lesson, going all the way back to the Magna Carta, which said that “when [a] sheriff or bailiff came to collect any debts owed [the King] from a dead man, they could remove property ‘until the debt which is evident shall be fully paid to us; and the residue shall be left to the executors to fulfill the will of the deceased.” Blackstone, the leading legal authority in England in the 1700s, said, “[i]f a tax collector seized a taxpayer’s property, he was ‘bound by an implied contract in law to restore [the property] on payment of the debt, duty, and expenses, before the time of sale; or, when sold, to render back the overplus.'”
The founders adopted England’s understanding in this regard:
This principle made its way across the Atlantic. In collecting taxes, 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.’ Ten States adopted similar statutes shortly after the founding.
And the Court cites an early U.S. Supreme Court opinion, authored by the first giant of the Court, Chief Justice John Marshall, who, in enforcing a state statute against a Georgia tax collector, reasoned that “if a whole tract of land was sold when a small part of it would have been sufficient for the taxes, which at present appears to be the case, the collector unquestionably exceeded his authority.”
Even in the present day, the Minnesota statute is a “minority rule” and “[t]hirty-six States and the Federal Government require that the excess value be returned to the taxpayer.”
What is more, Minnesota itself returns the excess property to taxpayers in every other context besides real estate:
Finally, Minnesota law itself recognizes that in other contexts a property owner is entitled to the surplus in excess of her debt…if a bank forecloses on a home because the homeowner fails to pay the mortgage, the homeowner is entitled to the surplus from the sale.If a taxpayer falls behind on her income tax and the State seizes and sells her property, any surplus proceeds…shall…be credited 0r refunded to the owner… So too if a taxpayer does not pay taxes on her personal property, like a car.
The Court summed up:
The Takings Clause was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole…A taxpayer who loses her $40,000 house to the State to fulfill a $15,000tax debt has made a far greater contribution to the public fisc than she owed. The taxpayer must render unto Caesar what is Caesar’s, but no more.Because we find that Tyler has plausibly alleged a taking under the Fifth Amendment, and she agrees that relief under ‘the Takings Clause would fully remedy [her] harm,’ we need not decide whether she has also alleged an excessive fine under the Eighth Amendment.The judgment of the Court of Appeals for the Eighth Circuit is reversed.It is so ordered.
Celebrations have ensued:
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