Heartless state law headed to high court

Opinion editor's note: Editorials represent the opinions of the Star Tribune Editorial Board, which operates independently from the newsroom.

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There is a legal battle brewing over what some call "home equity theft," and it's centered right here in Minnesota.

It started when Geraldine Tyler, now 94, had her condominium seized by Hennepin County in 2015 for failure to pay property taxes.

Tyler's debt to the county amounted to about $15,000 in back taxes, penalties and fees, while her condo was valued at $93,000. The county sold it for a song: $40,000.

So far, pretty standard. But here is where the county — and Minnesota — depart from the standard practice in most states. Under Minnesota law, Hennepin County was able to keep the entire $40,000 in proceeds — far more than what Tyler owed.

Tyler sued, contending that Hennepin County had violated constitutional rights that protect Americans against having property taken without fair compensation and also forbid excessive fines.

Pacific Legal Foundation, a conservative nonprofit that specializes in "individual and economic liberty," is representing Tyler pro bono.

Tyler's case was dismissed in federal district court, and an appellate court upheld that ruling, affirming that Minnesota could legally redefine Tyler's private home as public property, allowing the government to keep the excess value.

Now, despite two legal losses, Tyler appears to have piqued the interest of the U.S. Supreme Court. Pacific Legal petitioned the court in August, and recently the justices agreed to review the case.

At the time of that decision, Christina Martin, senior attorney at Pacific Legal Foundation, commented, "We believe that Hennepin County violated Ms. Tyler's rights by taking a huge windfall at her expense." The foundation noted in its 2022 report that 12 states and Washington, D.C., allow local governments to take more than the amount they are owed in back taxes. Based on a review of property tax records, Pacific Legal contends that from 2014 to 2020, an estimated 1,200 Minnesotans lost their homes and all equity for debts that averaged 8% of the homes' value.

Tyler, it should be noted, had lived in her Minneapolis condo for more than 10 years when she felt threatened by rising crime in her area. A widow, Tyler moved to an apartment in a safer area in 2010. Unable to afford both rent and property taxes, she started to fall behind on taxes.

The effort by counties to collect delinquent taxes can be prolonged. Dan Rogan, assistant county administrator for resident services, responded to a Star Tribune reporter's questions in a recent email, nothing that "when a property owner fails to pay taxes and does not avail herself of the numerous ways to remedy the deficiency — including selling the property, using the sales proceeds to pay the tax and keeping any surplus — the state's retention of the surplus is not an unconstitutional taking nor is it an excessive fine." Rogan in other statements to media noted that property owners are given three years to resolve unpaid taxes.

The county's practice may well be constitutional. That will be for the Supreme Court to decide. But there is another question here. Is it right? Is it fair dealing with someone so hard up that they can't pay taxes to take all the equity in their home, far in excess of what they owed?

David Schultz, a professor of political science and legal studies at Hamline University, told a Star Tribune editorial writer that the issues of legality and fairness are both worth considering.

Minnesota's law regarding excess equity is often not an issue, he said, "because the vast majority of the time in these cases there is no equity left, just liens." But, he added, "that is not the case here, which is why this one looks particularly bad for the county."

Schultz said that Pacific Legal is correct in asserting that a majority of states manage to offer some equity protections for homeowners who have fallen behind. "No one is saying local governments shouldn't make every effort to collect back taxes," he said. "But to take it all? This one truly looks horrible."

Schultz also noted that "we know there is an enormous racial gap in homeownership. [Tyler is Black.] We know the city is struggling to increase homeownership among people of color. It would strike me that just on the principle of equity there might have been a better way to handle this. Tax forgiveness? A loan program? Is the only answer to take probably the main asset this woman has left in her life, her remaining home equity?"

Schultz, a former director of city planning, said cities have a strong interest both in having taxes paid and in getting abandoned homes sold and back onto the tax rolls. The question here, he said, is, "Do they get to keep the excess?"

These are legitimate constitutional and moral questions, Schultz said. "I will say it seems morally and ethically wrong. For most of us, our home is our greatest asset. There are many states that do not keep the extra equity and we probably shouldn't either."

We agree. Tyler, who is now in an assisted living facility, may have lost her home, but it shouldn't have to mean she loses everything. Whatever the court decides, legislators should re-examine this heartless practice.