In a key win for NAHB and private property owners, the Supreme Court on May 25 handed down a unanimous decision delivering a victory to a landowner in a takings case out of Hennepin County, Minn. The landowner, 94-year-old Geraldine Tyler, owned a condominium that accumulated approximately $2,300 in unpaid real estate taxes and $13,000 in interest and penalties. The county sold Ms. Tyler’s property for $40,000, which satisfied her $15,000 tax debt. But under Minnesota law, the county kept the $25,000 in excess proceeds as a windfall.
Ms. Tyler sued Hennepin County, alleging the seizure of the excess proceeds from the sale of her house constituted a violation of the Fifth Amendment’s takings clause and a violation of the Eighth Amendment’s prohibition on excessive fines. At the trial court level, the case was dismissed for failure to state a claim. The Eighth Circuit affirmed.
Upon review, the Supreme Court found that Ms. Tyler’s lawsuit did in fact state a plausible claim. The county keeping the excess proceeds constituted a taking.
Seizing upon points raised in NAHB’s joint amicus brief, the Supreme Court noted that while state law is an important source of property rights, it cannot be used to circumvent traditional property interests. The Supreme Court also recognized the brief’s argument that since the Magna Carta, English and American common law has required governments to return any surplus from property taken to pay tax debts.
Again agreeing with the brief, the Supreme Court acknowledged the inconsistency of Minnesota law on the issue of excess proceeds. Banks in Minnesota are required by state law to return excess proceeds from a foreclosure sale to the home owner.
Minnesota law also protects the taxpayer’s right to surplus when collecting past due taxes on income or personal property. Yet, in the context of real estate taxes, Minnesota was pocketing the excess in real estate tax sales. This inconsistency was glaring to the unanimous Supreme Court.
Lastly, the Supreme Court rejected Hennepin County’s argument that Ms. Tyler had abandoned her property by failing to pay taxes, and therefore, had no right to the excess proceeds. The Supreme Court succinctly stated the county cannot “frame... [the failure to pay taxes] …as abandonment to avoid the demands of the Takings Clause.”
This win is not only important to Ms. Tyler but to property owners nationwide. No longer can localities seize windfalls on the excess proceeds from tax sales. This case also makes clear that states cannot circumvent traditional property rights via state law.