At U.S. Supreme Court: Can A Government Get Away With Cheating A Property Owner In Tax Foreclosure? (Tyler v. Hennepin County)

By: Donald L Swanson

Cruelty prevails, for now, in Hennepin County, Minnesota—with approval from the Eighth Circuit Court of Appeals. The case is Tyler v. Hennepin County, Minnesota.[Fn. 1] 

Get this.  Hennepin County:

• confiscates the home of 93-year-old Geraldine Tyler to pay a $15,000 property tax bill;
• sells Geraldine’s home for $40,000;
• keeps all the sale proceeds, including the $25,000 windfall that exceeds Geraldine’s tax bill; and
• fights in court to retain the right to cheat other people in similar fashion.

Geraldine petitions the U.S. Supreme Court for a writ of certiorari, and on January 13, 2023, the U.S. Supreme Court grants her Petition.[Fn. 2]

Background

In all states, municipalities may take real property and sell it to collect property tax debts:

• Most states allow the government to keep only as much as it is owed—any surplus proceeds after collecting the debt belong to the former owner; but
• In Minnesota and a dozen other states, local governments take absolute title, extinguishing the owner’s equity for cancelling a smaller tax or other debt to the local government.

Two Questions

Two questions upon which the Supreme Court grants certiorari are:

1. Whether taking and selling a home to satisfy a debt to the government, and keeping the surplus value as a windfall, violates the Takings Clause of the U.S. Constitution’s Fifth Amendment?
   • The Takings Clause says: “nor shall private property be taken for public use, without just compensation”; and
2. Whether the forfeiture of property worth far more than needed to satisfy the debt is a “fine” within the meaning of the U.S. Constitution’s Eighth Amendment?
   • The Eighth Amendment says: “Excessive bail shall not be required, nor excessive fines imposed.”

Eighth Circuit Opinion

The Eighth Circuit Court of Appeals explicitly approves Hennepin County’s cruelty in Tyler v. Hennepin County, Minnesota.

The Eighth Circuit apparently believes it has no choice because of the U.S. Supreme Court’s ruling in Nelson v. City of New York, 352 U.S. 103 (1956).

The Eighth Circuit applies that Nelson ruling to Geraldine Tyler’s circumstances and concludes:

• “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.”

Here’s the Eighth Circuit’s analysis of Nelson for Geraldine’s context:

• In Nelson, the City of New York foreclosed real property for delinquent taxes, and retained the entire proceeds of the sale;
• The Supreme Court held that “nothing in the Federal Constitution prevents” the government from retaining the surplus “where the record shows adequate steps were taken to notify the owners of the charges due and the foreclosure proceedings”; and
• Such reasoning controls in Geraldine’s case.

Additionally, the Eighth Circuit’s opinion describes these Nelson facts as “immaterial” to Geraldine’s case:

• Nelson has “applied for a reconveyance of that property and action has been held in abeyance pending the disposition of this appeal.”

In other words, the Nelson property owner still has remedies for recovering the lost property value, despite the Supreme Court ruling—that’s a huge difference from the result for Geraldine Tyler, who gets cheated as a final and irremediable result in the Eighth Circuit case.

On May 9, 2022, Geraldine files her Petition with the U.S. Supreme Court.

Sixth Circuit Opinion

On October 13, 2022, while Geraldine’s Petition is awaiting action by the Supreme Court, the Sixth Circuit Court of Appeals weighs-in with an opinion on similar facts. 

But the Sixth Circuit reaches an exactly-opposite conclusion from the Eighth Circuit, creating a circuit split.[Fn. 3]

The facts of the Sixth Circuit’s case are: 

• Oakland County, Michigan, takes “absolute title” to Tawanda Hall’s home—worth close to $300,000—to satisfy a $22,262 tax debt; and
• Then, Oakland County refuses to refund any of the difference.

The Sixth Circuit rules:

• Oakland County “took Tawanda’s property without just compensation”; and
• “We therefore reverse the district court’s dismissal of her claim against Oakland County under the Takings Clause of the U.S. Constitution.”

The Sixth Circuit distinguishes the U.S. Supreme Court’s Nelson v. City of New York opinion described above as being about process, not about substantive property rights:

• in Nelson, a bookkeeper’s malfeasance results in nonpayment of water bills, which creates a tax lien;
• in the City’s tax lien foreclosure, the owner could have received the surplus proceeds by simply asking—but the owner fails to ask, because of the same bookkeeper’s further malfeasance; but
• Michigan law, by contrast, gives Tawanda no such opportunity at all.

The Sixth Circuit observes further:

• Oakland County forcibly took property worth vastly more than the delinquent debts and failed to refund any of the difference—
  • “In some legal precincts that sort of behavior is called theft”; and
• the Takings Clause bars the government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole—
  • Tawanda has “patently been forced to bear such burdens here.”

Conclusion

It will be interesting to see what the U.S. Supreme Court does with Tyler v. Hennepin County, Minnesota.

I’m going out on a limb with a prediction that the U.S. Supreme Court will, (i) follow the Sixth Circuit’s ruling that protects the owner, and (ii) reject the Eighth Circuit’s ruling that cheats the owner.

Unfortunately, however, this prediction is more about hope than foresight.

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Footnote 1.  The Eighth Circuit Court of Appeals opinion is in Tyler v. Hennepin County, Minnesota, 8th Cir. Case No. 20-3730 (decided February 16, 2020). 

Footnote 2.  The U.S. Supreme Court grants Geraldine Tyler’s Petition for a writ of certiorari in Supreme Court Case No. 22-166.

Footnote 3.  The Sixth Circuit’s opinion is in Hall v. Meisner, 51 F.4th 185 (6th Cir. 2022). 

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