Tax Foreclosure Seizures Cannot Exceed Amount Owed

Tax authorities in numerous states have historically collected more funds in tax foreclosures than the amount owed by a delinquent taxpayer. The United States Supreme Court, reversing the U.S. Court of Appeals for the Eighth Circuit, has held that a state collecting more than is owed via foreclosure violates the Fifth Amendment’s bar on taking of private property for public use without just compensation. Tyler v. Hennepin County, Minn.

Tyler owed roughly $15,000 in unpaid property taxes, including interest and fees, on her home. The county foreclosed on her home and sold it at auction in 2016 for $40,000, keeping the entire balance. Tyler filed a proposed class action suit against the county on behalf of similarly situated homeowners, alleging that the retention of the surplus beyond that owed in taxes violated the Fifth Amendment’s bar on taking of private property without just compensation.

The United States District Court for the District of Minnesota dismissed suit for failure to state a claim and the Eighth Circuit affirmed the dismissal. In a unanimous decision, the Supreme Court disagreed, finding that retention of the surplus violated the Takings Clause. The Court noted that thirty-six states and the federal government require that excess value be returned to the taxpayer, and even Minnesota law provides that a private creditor or bank can take only what is required to satisfy the debt under a foreclosure. Writing for the Court, Chief Justice Roberts noted: “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. The taxpayer must render unto Caesar what is Caesar’s, but no more.”

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