On April 26, the United States Supreme Court held oral arguments for Tyler v. Hennepin County. While the court of public opinion, and many key players, appear to be throwing their support behind Geraldine Tyler, Minnesota Lawyer spoke to an attorney presenting a case for states’ rights.
It is difficult to think of a more sympathetic plaintiff. Tyler, a 94-year-old grandmother, lived in a condo before moving to an apartment. However, she was unable to afford the property taxes on her condominium. Minnesota initiated a tax-collection process. In all, Tyler owed $15,000 in tax debt, penalties, interest, and fees. Ultimately, Hennepin County sold the condo for $40,000, meaning it had a surplus of $25,000. However, Tyler did not receive any of the surplus.
Tyler, who is being represented by Pacific Legal Foundation, argued that Hennepin County violated the Takings Clause of the U.S. Constitution’s Fifth Amendment when it seized her condominium and kept the surplus. In March 2022, the 8th U.S. Circuit Court of Appeals held that it was permissible for Minnesota to keep the surplus.
“Where 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,” the appellate court wrote.
Ultimately, the case reached the U.S. Supreme Court. Tyler appears to have the momentum. The Solicitor General for the Biden administration conceded that there was a taking in violation of the Fifth Amendment. Eight states — Arkansas, Kansas, Kentucky, Louisiana, North Dakota, Texas, Utah, and West Virginia — filed an amicus brief in support of Tyler. Even the ACLU and Cato Institute are on a brief together for Tyler. As other news outlets have noted, the justices appeared to side with Tyler during oral arguments.
There are two sides to this case, although Tyler’s opposition has not gotten much press. Minnesota Lawyer spoke with Ted Seitz, a member at Dykema, who was at oral arguments on Wednesday. Dykema submitted an amicus brief on behalf of the Michigan Association of Counties, which represents 83 counties, and the Michigan Association of County Treasurers, in favor of respondents.
While 12 states, as well as the District of Columbia, have laws that permit states to keep home equity, only three states (one of which is Minnesota) filed an amicus brief supporting Hennepin County.
Michigan used to have a law like Minnesota’s, but the Michigan Supreme Court determined that it was unlawful in 2020. In Rafaeli v. Oakland County, the homeowner owed eight bucks and change, but the state sold his home for $24,500 and pocketed everything. While the Michigan Supreme Court found that the law violated the Michigan Constitution, it did not find that the law violated the Fifth Amendment. Michigan’s new, amended foreclosure statute — which was passed unanimously and signed into law by Gov. Gretchen Whitmer — now permits homeowners to get the surplus proceeds.
“It is certainly an interesting issue for state rights,” Seitz said. “It really is, in our view, a state issue.”
Seitz, on behalf of the counties and county treasurers, asserts that state property tax issues are best left to the states and that states should decide the balance between procedural fairness and the necessity of tax collection.
“Michigan has already addressed this issue [of home equity in foreclosure actions] in its own Supreme Court and legislature, according to its state constitution and laws — there is no need for federal intervention here,” said Seitz.
“If [the Court] phrased it a certain way, their opinion, it could certainly be damaging to Michigan,” said Seitz. “The issues raised in this case have the potential to upend many states’ property tax frameworks that fund the local government services people depend on, including housing, public safety, and community investment.”
Cathy Lunsford, Midland County, Michigan, treasurer, echoed this. “While foreclosure for nonpayment of taxes is always the last resort and something that county treasurers try to avoid whenever possible, sometimes it’s necessary to sell a foreclosed property to maintain the revenues that keep local governments running.”
Speaking to Minnesota Lawyer in January, Daniel Rogan, assistant country administrator for Hennepin County, said that the county was being characterized as stripping people of their property when it had various policies and procedures to help people avoid forfeiture. The forfeiture legal process, Rogan maintained, takes over three years, with multiple notifications provided to property owners.
“These procedures required by law give the taxpayer every chance to pay and makes the taxpayer clearly aware of the consequences of not paying the taxes before confiscation of the real property,” Rogan said.
While the Supreme Court justices appeared to lean toward Tyler’s position, one justice raised some questions for both Tyler’s attorney and the government.
“It seemed like one judge, who I did not think would be as interested in states’ rights piece, was most interested, and that was Justice Sotomayor,” Seitz said. “She seemed to be saying that, you know, we need to watch out that when we say, after 240 years of not holding this, that the Fifth Amendment comes into play here.”
Sotomayor was focusing on a difference between when Tyler’s attorney and the solicitor general said the taking occurred. Tyler argued that the taking occurred when the surplus was kept by the government, while the government argued that the taking happened at the time of title.
“What happens if there’s a stock market crash the day after the taking and the value plummets? Is the state responsible for that decrease in price?” Sotomayor asked.
“Here you have a debtor who basically doesn’t want to do anything,” stated Justice Sotomayor. “What’s the county supposed to do to protect itself?
“[T]his Court has long understood that the government may enact regulations that can affect the value of property, sort of adjusting the burdens of economic life, as this Court has said it, and that that is not always or even, you know, often going to be a taking,” stated Erica Ross, assistant to the solicitor general, at oral arguments. “The state took all of that without recognizing that the property might be worth more than the tax debt, and so what’s really at issue is, you know, cashing out that — that property interest in the back end.”
Sotomayor disagreed. “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 its’s sold,” Sotomayor affirmed. “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 government’s forcing us into a much more radical position,” Sotomayor avowed.
“Justice Sotomayor is kind of saying we need to be cautious here that we don’t let one kind of sympathetic plaintiff kind of change things to that we have dire consequences,” Seitz asserted. “These state and local governments need taxpayers.”
“To have a system that would have a bomb in it could really be a parade of unintended consequences. I think that’s what Sotomayor was cautioning,” Seitz stressed.
The court’s decision is expected in late June.