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Legal Docket: Settling debts with the kitchen sink


WORLD Radio - Legal Docket: Settling debts with the kitchen sink

At issue is whether state governments can pocket profits from seizing and selling property to resolve property-tax debt

Home for sale iStock

MARY REICHARD, HOST: It’s Monday, May 8th. Glad to have you along for today’s edition of The World and Everything in It. Good morning. I’m Mary Reichard.

NICK EICHER, HOST: And I’m Nick Eicher. It’s time for Legal Docket. Today, a dispute over settling property-tax debt. Or, what’s sometimes derisively referred to as home-equity theft.

Whatever you call it, “it” can happen in twelve states and the District of Columbia. And when you fall too far behind on your property taxes, “it” does happen.

The local government seizes your home, sells your home, and keeps the money. All of it—and not just the part you owe in property tax, interest, and costs. If anything is left over, that’s a windfall to the state treasury.

REICHARD: That’s exactly what happened to a 94-year-old widow by the name of Geraldine Tyler. It’s rare to see a 94 year old bring a case to the Supreme Court! But she is determined to bring change to Hennepin County, Minnesota.

Here’s how her lawyer Christina Martin presented it to the justices during oral argument last month:

CHRISTINA MARTIN: When the government takes property to satisfy a debt and takes more than what is owed, it has a constitutional duty to return or pay for the excess. Here, Geraldine Tyler owed $15,000, which included nearly $13,000 in penalties, interest, and related costs. To satisfy that debt, Hennepin County took Ms. Tyler's former home, which was worth much more than that, and later sold it for $40,000. The county kept all $40,000 for public uses.

EICHER: She would go on to argue that that $25,000 windfall for the county amounts to a violation of Tyler’s constitutional rights.

Two constitutional rights under the original Bill of Rights, to be precise: First, the Takings Clause. That’s the part of the Fifth Amendment that requires just compensation be paid when private property is taken for public use.

The second right asserted is under the Eighth Amendment … which bars governments from issuing excessive fines. In a 19-98 opinion … the Supreme Court sharpened the definition of “excessive fines” this way: An unconstitutionally excessive fine is one that is, quoting here, “grossly disproportionate to the gravity of the offense that it was designed to punish.”

REICHARD: Regardless, the lower courts had dismissed this case for “failure to state a claim.” They reasoned Tyler had legally forfeited her interest in the condo by not paying up. Therefore, the courts reasoned, she had no claim.

And that’s the way lawyer Neal Katyal for Hennepin County started his argument: He says she lacked standing to sue.

Tyler never alleged in her complaint that she had any equity in her condo. Yet here she comes complaining about losing her equity. Besides, Minnesota has sovereign power to foreclose delinquent properties, and always has.

Justice Clarence Thomas was not impressed at all:

JUSTICE THOMAS: I think I'll bypass the standing.

So much for that. Then he continued:

THOMAS: At bottom, she's saying the county took her property, made a profit on it with the surplus equity, and it belongs to her. But, at any rate, can you think of, Mr. Katyal, any instance in which a creditor can foreclose on property and -- or seize property and keep the excess profit or the excess amount over the debt that's actually owed?

EICHER: Katyal explained different properties can vary by type: ones with mortgages, ones with surplus equity, ones that have no equity, not to mention the long tradition in Minnesota of doing things this way.

And after all, paying taxes is a reasonable condition of ownership. Tyler had plenty of chances, he argued, to square things up with the county. She could have sold her condo and used proceeds to pay taxes. She could have refinanced her mortgage. She could have signed up for a 10-year tax payment plan. But she refused those options. Again, lawyer Neal Katyal:

NEAL KATYAL: The whole point that a state like Minnesota and, indeed, 19 other states are worried about is they don't want to be real estate agents of last resort. With a private mortgage, the bank opts in affirmatively to that and they say, you know, here are the conditions and the like. With this situation, the government is stuck holding the bag at the end of the day.

REICHARD: And he argued there’s no excessive fine violation here, either. Tyler had five years to work this out. Forfeiture happens. He argued that’s not punitive, it’s remedial.

Minnesota’s counties collect property taxes to fund the schools, fire stations, and libraries. So this isn’t a fine that would bring it under the Eighth Amendment.

But Tyler’s lawyer Christina Martin pointed out that Hennepin County could have collected the debt the way the majority of local governments do: keep what’s owed, return the rest.

The way it is now?

MARTIN: Under the county’s theory, you can have exactly what happened in Michigan when a county took an entire home that was worth at least $25,000, at least that’s what it fetched at an auction, over an $8.41 tax delinquency. And you can have the situation in Nebraska, where an elderly widow in a nursing home lost her million-dollar farm over a relatively small debt. And I think the Constitution puts those limits.

EICHER: The justices questioned both sides carefully. Listen to this exchange between Chief Justice John Roberts and Katyal:

JUSTICE ROBERTS: What's the point of the Takings Clause? I mean, that was something that was pretty important to the framers. Why did they put that in there if, in fact, the states – and you say, in fact, you know, some of them had it. Virginia, Kentucky, were exercising extraordinary authority to take private property. The Constitution seemed to have a different idea in mind.

KATYAL: Oh, we think there's a vital purpose of the Takings Clause, and it's really twofold.

The point is that any “taking” in the case of Tyler could have been averted by simply complying with the law and paying taxes.

And then this acknowledgement by Justice Amy Coney Barrett of how a government can be tricky. She addresses Martin, lawyer for Tyler.

JUSTICE BARRETT: What is really the point of your winning if the county can do the same thing by saying: Yeah, we called it a forfeiture, but, you know what, it's really abandonment? Would the analysis be different? Because you can't dispute that we do have a long tradition in the country of abandonment. I mean, counties, states, can take abandoned property that's not maintained, for example.

MARTIN: Well, so the tradition of abandonment requires an intent to relinquish, which is actually an interesting factual question, and you -- to just suppose an intent because somebody isn't paying thousands of dollars, because they can add on all the other reasons why they might try to claim they think it's abandoned, but, ultimately, it's the failure to pay property taxes.

REICHARD: The Biden administration also had time at the lectern. Assistant to the Solicitor General Erica Ross agreed the county violated the Takings Clause here. But the contention is at what moment does a taking actually happen? Ross argued it's when the county gets title, not when the property is sold.

Justice Sonia Sotomayor resisted that argument:

JUSTICE SOTOMAYOR: Ms. Ross, you're throwing a bomb into 240-50 years of history with respect to delinquent taxes and sales only because, if you define it as the time the state takes title, then -- and valuation as of that date, no -- nothing's going to ever happen where a state's going to take that risk because properties have to be sold, the state's being forced into being the agent for the seller, and it's going to have to take all the risk and all of the responsibility for whatever happens to that property until it's sold. Why would any state want to do that? And why are you forcing states into that? Your adversary took a simple position. I'm entitled to a surplus. I think that's the question we should answer.

The tenor of the questions looks like a win for Geraldine Tyler.

And yet, we do need a balance between the rights of delinquent taxpayers and the rights of everyone else. And it’s probably best for society to encourage people to sell if they can’t keep up with the responsibilities of ownership.

Lots of friend-of-the-court briefs in the case from groups you’d not expect to agree on much of anything: from the ACLU to the Claremont Institute, from the Cato Institute to the National Association of Home Builders, all in support of Tyler. On the other hand, Hennepin County mostly got support from other local governments, with clear self-interests.

We’ll know what the justices decide by the end of June. And that’s this week’s Legal Docket.

WORLD Radio transcripts are created on a rush deadline. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of WORLD Radio programming is the audio record.


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