A Minnesota county that sold an elderly woman’s condo for $15,000 to satisfy a property tax debt must refund the $25,000 balance that remained from the sale, the Supreme Court of the United States decreed in a unanimous decision.
Geraldine Tyler, now 94, bought a one-bedroom condominium in Minneapolis in 1999 “and lived alone there for more than a decade,” the court ruling relates. But as the woman aged, she and her family decided she would be safer in a senior community, so they moved her into one in 2010.
For some reason, nobody paid the property taxes on the condo in Tyler’s absence. Consequently, by 2015 the condo had accumulated $2,300 in unpaid taxes plus $13,000 in interest and penalties.
Hennepin County, acting in accordance with Minnesota’s forfeiture procedures, seized the condo and sold it for $40,000. The county extinguished the $15,000 tax debt and kept the remaining $25,000 “for its own use.”
Tyler brought suit, citing the “Takings” clause of the Fifth Amendment to the U.S. Constitution and the “Excessive Fines” clause of the Eighth Amendment.
The district court dismissed the lawsuit for “failure to state a claim,” and the Eighth Circuit Court of Appeals affirmed that ruling.
Hennepin County asserted that Tyler did not have legal standing to bring her “takings” claim. But Chief Justice John G. Roberts Jr. wrote that Tyler’s claim “is a classic pocketbook injury sufficient to give her standing.” The county has kept $25,000 that “belongs to her.”
The county cited public records that suggest the condominium may be subject to a $49,000 mortgage and a $12,000 lien for unpaid homeowners’ association fees. Maybe so, but had Tyler received the surplus from the tax sale “she could have at the very least used it to reduce any such liability,” Roberts noted.
The Takings Clause, applicable to the states via the 14th Amendment, mandates that private property “[shall not] be taken for public use, without just compensation.”
Historically, Minnesota recognized that a homeowner whose property is sold to satisfy delinquent ad valorem taxes “had an interest in the excess value of the home above the debt owed,” Roberts wrote.
Until 1935, Minnesota could sell only the “least quantity” of land sufficient to pay off a tax debt, and any surplus remaining from the sale “must revert to the owner,” the law provided. But that year Minnesota enacted a law which provided that an owner forfeits his/her interest in a home upon falling behind on property taxes. “This means, the County reasons, that Tyler has no property interest” protected by the Takings Clause.
“History and precedent say otherwise,” Roberts asserted.
The county had the power to sell Tyler’s home to recover the unpaid property taxes. “But it could not use the toehold of the tax debt to confiscate more property than was due,” Roberts wrote. By doing so, the county “effected a classic taking in which the government directly appropriates private property for its own use.”
‘Takings’ principle dates to Magna Carta
The principle that a government may not take more from a taxpayer than is owed “can trace its origins at least as far back” as the Magna Carta issued in 1215. That doctrine “became rooted in English law” and “made its way across the Atlantic” to the United States, Roberts wrote.
Furthermore, Minnesota law itself “recognizes that in other contexts” a property owner is entitled to any surplus in excess of a debt.
Minnesota law provides that a private creditor may enforce a judgment by selling a debtor’s property but “[n]o more shall be sold than is sufficient to satisfy” the debt, and the creditor may receive “only so much [of the proceeds] as will satisfy” that debt.
Likewise, Roberts continued, if a bank forecloses on a home because the homeowner fails to pay the mortgage, the homeowner is entitled to any surplus from the sale. And in collecting “all other taxes,” the Chief Justice wrote, Minnesota “protects the taxpayer’s right to surplus.”
Minnesota is forbidden from extinguishing a property interest “that it recognizes everywhere else” in order to avoid paying just compensation “when it is the one doing the taking,” SCOTUS decreed.
Nonagenarian didn’t ‘abandon’ her condo
The county argued that Tyler “abandoned her property by failing to comply with a reasonable condition imposed by the State”: paying the property taxes.
However, the county cited no case “suggesting that failing to pay property taxes is itself sufficient for abandonment,” Roberts pointed out. In fact, a Minnesota court ruled in 1914 that an owner did not abandon property “despite failing to pay taxes for 30 years.”
Minnesota’s forfeiture scheme “is not about abandonment at all,” the Supreme Court decided. A delinquent taxpayer can continue to live in a house for years after falling behind in taxes, “up until the government sells it.”
In fact, Minnesota “cares only about the taxpayer’s failure to contribute his/her “share to the public fisc,” Roberts wrote. The county cannot “frame that failure as abandonment to avoid the demands” of the Takings Clause.
A taxpayer who loses her $40,000 house to fulfill a $15,000 tax debt “has made a far greater contribution to the public fisc than she owed,” the Court declared. “The taxpayer must render unto Caesar what is Caesar’s, but no more.”
Minnesota law ‘punitive’
Justice Neil Gorsuch, in a concurring opinion, wrote that the trial court concluded – erroneously – that Minnesota’s tax-forfeiture law is not punitive because “its primary purpose” is “remedial” – intended to compensate the government “for lost revenues due to the non-payment of taxes.”
That “primary purpose” test “finds no support in our law,” wrote Gorsuch, who was joined in his opinion by Justice Ketanji Brown Jackson.
Because sanctions “frequently serve more than one purpose,” Gorsuch wrote, the Excessive Fines Clause “applies to any statutory scheme that “serv[es] in part to punish.” So long as the law “cannot fairly be said solely to serve a remedial purpose,” the Excessive Fines Clause applies.
The district and circuit courts rejected Tyler’s “excessive fines” claim by reasoning that the forfeiture was not a fine because “it was intended to remedy the State’s tax losses, not to punish delinquent property owners.”
Yet the district court approved the Minnesota tax-forfeiture scheme in Tyler’s case “in large part because ‘the ultimate possibility of loss of property serves as a deterrent to taxpayers considering tax delinquency.’”
Economic penalties imposed to deter willful noncompliance with the law “are fines by any other name,” Gorsuch maintained. “And the Constitution has something to say about them: They cannot be excessive.”