Statement of Principles on Ending Home Equity Theft
Section 1. Twelve States’ Current Laws Facilitate Government Theft of Home Equity
- In a minority of states, if a property owner fails to pay or underpays their property taxes, the county or a lienholder can eventually take the entire property along with the owner’s equity for a debt of just a few dollars. Unlike other types of foreclosures, the person is left with nothing—regardless of the size of the debt and or value of the property.
- Most people don’t intentionally fail to pay their property taxes. Life happens; people miscalculate; people get sick or have unexpected financial hardships; estates are in limbo. Under the unjust and unconstitutional laws of 12 states, none of that matters. Homeowners will lose their entire nest egg.
- Across the country, untold millions of dollars in equity are stolen each year.
- In 2020, the Michigan Supreme Court held that Michigan’s tax foreclosure law that did not return the excess from tax foreclosure sales to the former owner violated the state Constitution’s Taking Clause. The court ruled that after paying the tax debt, government must return the surplus profits to the former owner.
- In many other states, former homeowners are challenging home equity theft. Any county that participates in equity theft may find itself on the losing end of an expensive lawsuit.
- Note: As of November 1, 2021, Alabama, Arizona, Colorado, Illinois, Maine, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, and Wisconsin all allow home equity theft.
Section 2. Solution
- Counties rely on property taxes and must be able to collect what they are due.
- Many states sell tax liens. Tax liens are an efficient way to ensure counties have cash flow. Tax lien investors buy from the government the right to collect the debt and then, like other lenders, are entitled to collect interest on their investments.
- Sometimes it is necessary to foreclose on properties to collect a debt.
- Before foreclosure, the owner must receive adequate notice, including a straightforward explanation of the process and consequences.
- Ideally, to better protect homeowners and any other interested parties, the foreclosure should be a judicial proceeding rather than an administrative one. 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.
- Whether a state forecloses on tax delinquent properties itself, or requires lienholders to handle such foreclosures, the entity foreclosing may collect the debt with interest, penalties, and reasonable costs associated with selling the property—but nothing more.
- After the tax lien investor or county collects what it is due and any other debts or levies on the property are paid, the law must require the surplus profits to be returned to the prior owner.