If you owe someone $14, should they be entitled to take a $100 bill out of your wallet and keep the change? Obviously not. Yet in a dozen states and the nation’s capital, the government collects delinquent real estate taxes that way.
Take, for example, 93-year-old Geraldine Tyler. When she failed to pay approximately $2,300 in property taxes on her former Minneapolis condominium, Hennepin County foreclosed and sold the property for $40,000. Rather than refund Ms. Tyler the $25,000 left over after paying all her delinquent taxes, penalties, interest and related costs, the government kept every penny.
The same thing happened to Kevin Fair in Nebraska after he fell behind on his property taxes when he quit his job to care for his dying wife, Terry. In Mr. Fair’s case, Scotts Bluff County sold his property tax debt to a private company, Continental Resources, which allowed the investor to collect Mr. Fair’s taxes plus costs and 14 percent interest. He later got notice of a 90-day deadline to pay the debt, which had grown to $5,268, and clear his property. He was unable to get a loan and the county treasurer deeded his home to the investor, leaving Mr. Fair with nothing, even though the home was worth approximately 11 times more than his debt.
Unfortunately, these stories are not rare. A new report by Pacific Legal Foundation, called “End Home Equity Theft,” reveals that from 2014 until 2021, more than 7,900 homes were taken as payment for property tax debts worth just 14 percent of the home’s value. Governments and private investors have pocketed hundreds of millions of dollars in hard-earned home equity at the expense of often elderly and struggling owners such as Ms. Tyler and Mr. Fair.
And that’s just the tip of the iceberg, since the study could examine only a sampling of homes taken for delinquent taxes and does not include any of the many businesses, farms and vacant properties that likewise have been seized at a windfall to the government or its cronies. This grotesque practice of taking more than what is owed has been found unconstitutional by many courts, including the U.S. Court of Appeals for the Sixth Circuit and the state supreme courts in Michigan, New Hampshire, Vermont, Virginia and Mississippi.
But surprisingly, some courts still disagree. Earlier this year, the U.S. Court of Appeals for the Eighth Circuit rejected Ms. Tyler’s constitutional claims. The court did not dispute that Ms. Tyler had a deeply rooted property right in her former home’s equity, which has roots in early American law and as far back as Magna Carta. Instead, the court held that the state of Minnesota had legalized taking Ms. Tyler’s home equity and the government, therefore, took nothing from her. Along that vein, the Nebraska Supreme Court rejected Mr. Fair’s constitutional claims because it was not convinced that he had a property right in his equity since the state statute does not acknowledge it.
Ms. Tyler and Mr. Fair are asking the U.S. Supreme Court to hear their cases.
In the meantime, countless families are in danger of losing their homes and life savings to the government now. But it doesn’t have to be that way.
Although America is deeply divided on many hot-button issues, Americans of every political persuasion overwhelmingly agree that legalized home equity theft is abhorrent and unnecessary. For example, groups ranging from AARP, ACLU Nebraska, Cato, Competitive Enterprise Institute, Legal Services of the Hudson Valley, Manhattan Institute, and National Taxpayer Union all have spoken out against such laws, which particularly harm the elderly, sick and poor. Indeed, in the past few years, Montana, North Dakota and Wisconsin have passed popular, bipartisan laws that end some or all home equity theft in those states.
In contrast, the parties on record supporting home equity theft laws represent municipalities or private investors who have pocketed windfalls under such systems.
But once greedy calculations are removed, there are no good arguments in favor of home equity theft.
Most states — red, blue, and purple — collect property taxes without swiping hard-earned savings built up in homes. For example, Florida counties sell property tax liens that typically impose lower interest rates on debtors than states such as Minnesota and Nebraska, which confiscate home equity. Those lower rates make it easier for debtors to save their homes from foreclosure. If Florida debtors still fail to pay, they don’t lose everything. Instead, the property is sold, the debts are paid with the proceeds, and the remainder is returned to the former owner.
That means there is no justification for terrible tax foreclosure laws in Alabama, Arizona, Colorado, D.C., Illinois, Maine, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon and South Dakota.
Americans value property rights and loathe theft. It’s time that every state in the union ends home equity theft once and for all.
Christina Martin is a senior attorney at Pacific Legal Foundation, a nonprofit legal organization that defends Americans’ liberties when threatened by government overreach and abuse. PLF represents Geraldine Tyler and Kevin Fair free of charge. Follow her on Twitter @CMM123.