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Grandma didn't pay taxes. Now her house is focus of property rights test case

Saul Loeb
AFP via Getty Images

The U.S. Supreme Court hears arguments Wednesday in the case of a 94-year-old Minneapolis woman whose condominium was seized by Hennepin County for failure to pay property taxes. At issue is the way at least a dozen states handle the sale of homes to pay off overdue taxes.

Geraldine Tyler bought her condo in Minneapolis in 1999 and lived there until 2010, when at age 81 she moved to a senior assisted-living center at the urging of her children. After that, she stopped paying taxes on the condo, which she still owned. Tyler does not dispute that the county repeatedly notified her that she risked losing the condo if she didn't pay up. By 2015, she owed $15,000 in unpaid taxes, interest and fees.

The county took possession of the property under state law and sold the condo at auction for $40,000. But like at least a dozen other states, it did not pay Tyler the surplus $25,000 from the sale.

Represented by the Pacific Legal Foundation, Tyler subsequently went to court, contending that by keeping the excess, the county had unconstitutionally taken her property.

"We call that home equity theft because it's essentially legalized government theft," lawyer Christina Martin of the Pacific Legal Foundation says.

Martin concedes that the county had the right to take Tyler's property for nonpayment of taxes but argues that "when the government takes more than it's owed, that's ultimately wrong, and we believe it's unconstitutional" — unconstitutional, she says, because it is a taking of property without just compensation.

The county's view

But the county tells a very different story about the seizure of Tyler's home.

"The county doesn't make a profit," its lawyer Rebecca Holschuh says. "The county doesn't even break even through its administration of the tax forfeiture laws."

Holschuh notes that there are a variety of ways that homeowners can avoid forfeiture. The state has a payment plan that allows people to pay what they owe over a 10-year period. And for seniors like Tyler, there's a program allowing them to pay no more than 3% of their annual income.

Holschuh says that the county really would rather not be a default realtor. It doesn't want abandoned homes, which bring down property values, and it doesn't want to spend money to make a property sellable.

"And really, if somebody wants to pull their equity out of property, the best way for them to do that is to sell the property themselves," Holschuh said.

She notes that's why the state gives homeowners five years before forfeiture — to refinance their homes and pay back taxes, enter into a tax payment plan, or sell the home and reap the profit. Indeed, the county asserts that Tyler had no equity in the home at the time of the forfeiture because she owed $48,000 on her mortgage and more than $11,000 in homeowner's association fees, debts that were canceled under state law when the state declared her home forfeited for taxes.

"This is really a remedy of last resort in which the title transfers to the state by default," Holschuh said.

"It's a roller coaster ride"

Whoever is right, nobody disputes that losing a home can be devastating for families. And homeowners do tell some horrible tales elsewhere in the country.

Tawana Hall and her husband moved out of Detroit to Southfield, Mich., bought a rundown house and began fixing it up. But the couple fell behind on tax payments, enrolled in a tax payment plan and then fell behind again. The city subsequently took possession of the home and sold it to a developer for $1, who later sold it for $300,000.

"It's a roller coaster ride," Hall said. "You put a lot into it. And it was supposed to be our forever home and our children's home ... to have to uproot and move back into the city ... it was a lot and, you know, it's just overwhelming."

The people most often harmed by these property forfeitures for back taxes are the "elderly, sick, or the vulnerable and unsophisticated," according to Martin, the lawyer for the Pacific Legal Foundation.

That said, this is the first time the Supreme Court has directly considered whether a property tax forfeiture, something the court has long upheld, can be considered a taking under the Constitution. If it is, that poses other questions: Would the county have to maximize the sale price, not just put the property up for public auction? What if nobody wanted to buy the property at the higher price? What if there were competing claims on the property?

County and local government associations have filed briefs contending that such a system would add to urban blight while crippling local government property tax collection, the very system that finances local schools, fire and police protection, safe drinking water and much more.

But the current conservative court has been very sympathetic to property rights claims, so it may well be sympathetic to Tyler's argument, too.

A decision in the case is expected by summer.

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Nina Totenberg is NPR's award-winning legal affairs correspondent. Her reports air regularly on NPR's critically acclaimed newsmagazines All Things Considered, Morning Edition, and Weekend Edition.