Will SCOTUS Protect Property Owners by Ending Home Equity Theft?
Home equity theft occurs when a government forecloses on a property due to outstanding property taxes or liens – but keeps all proceeds, including those exceeding what was owed.
Two weeks ago, the Supreme Court heard oral arguments in Tyler v. Hennepin County, a David v. Goliath-like fight between 94-year-old grandmother Geraldine Tyler and the Minnesota county that seized her home. At the center of the case is the practice most commonly known as “home equity theft.”
Home equity theft occurs when a government forecloses on a property due to outstanding property taxes or liens and then keeps all the proceeds, including those exceeding what was owed. In the case of Geraldine Tyler, she owed $15,000 in taxes, interest, and costs to Hennepin County, but when her house was seized and sold by the County for $40,000, the $25,000 profit did not go back to Ms. Tyler. The county kept it all.
This practice is not exclusive to Minnesota; 11 states and Washington, DC still allow home equity theft. In 2019, a homeowner in Michigan named Uri Rafaeli endured a similar experience as Ms. Tyler—except Mr. Rafaeli owed only $8.41 in underpaid property taxes. Michigan’s Oakland County foreclosed on his home and pocketed nearly $24,500 of profit off the sale of the house. Like Ms. Tyler, Mr. Rafaeli was represented by the Pacific Legal Foundation in suing the government, and Michigan’s Supreme Court found the practice unconstitutional, banning it in the Great Lakes State.
In March 2022, Wisconsin became the most recent state to outlaw the practice. Of course, if the Supreme Court sides with Ms. Tyler in Tyler v. Hennepin County, it could be outlawed nationwide. Some have predicted a unanimous ruling in favor of Ms. Tyler.
ALEC’s Commerce, Insurance, and Economic Development Task Force passed the Statement of Principles on Ending Home Equity Theft in 2021 to take a stand against the practice. Key to the statement is the principle stating that “the entity foreclosing may collect the debt with interest, penalties, and reasonable costs associated with selling the property—but nothing more.”
Ending home equity theft would be a win for homeowners struggling to keep up with taxes, fees, and high inflation. As the CIED policy acknowledges, “Life happens; people miscalculate; people get sick or have unexpected financial hardships; estates are in limbo.” Eliminating home equity theft would prevent governments from preying on citizens in these difficult situations.
To help citizens to recover from property tax foreclosure, policymakers should consider CIED’s recommendations, including a requirement that “when a foreclosed property is sold, it should be advertised and sold online in a manner to retrieve a dollar amount as close to fair market value as possible.” Montana passed a law requiring a similar process in 2019, which helps to maximize foreclosed property sales prices and ensures the original homeowner receives a larger portion of their home’s value.
As stated previously, home equity theft equates to “the government taking more than it’s owed from citizens it’s supposed to be serving.” Homeowners should pay their property taxes, but falling behind should not mean homeowners like Geraldine Tyler lose their entire home equity nest egg.