U.S. Supreme Court rules government home equity theft unconstitutional

U.S. Supreme Court rules government home equity theft unconstitutional

U.S. Supreme Court justices ruled for a widow from Minnesota whose home was seized and sold for a tax debt, but local government kept $25,000 more than she owed. The ruling should stop the practice in Illinois, where it is especially prevalent.

The U.S. Supreme Court ruled May 25 as unconstitutional a Minnesota law allowing government to pocket the profits of property seized from indebted residents: a common practice in Illinois, where a study of the 11 largest counties found $400 million in government property theft.

The high court ruled unanimously in Tyler v. Hennepin County in favor of Geraldine Tyler, a Minnesota widow whose condo was seized by Hennepin County government to settle a $15,000 property tax debt.

Hennepin County sold the condo for $40,000 and kept the profit – $25,000 more than what Tyler owed. The ruling May 25 will impact this law and similar ones in 21 U.S. states, including Illinois, where they amount to theft of home equity by local governments.  Tyler can now go back to court to argue the county owes her the fair market value of her property, minus her tax debt.

Illinois has some of the highest property taxes in the country. Poor and disadvantaged Illinoisans are often the ones struggling with payments, and therefore in danger of losing all the equity they’ve built up in their homes if they miss property tax payments.

The ruling on Tyler’s case should bring an end to this practice across the country, including in Illinois.

That is why the Illinois Policy Institute joined the Buckeye Institute, the Competitive Enterprise Institute, the Manhattan Institute, Platte Institute and the National Federation of Independent Business Small Business Legal Center in filing an amicus brief in support of Tyler’s case against Hennepin County. The case was argued for Tyler by the Pacific Legal Foundation.

Chief Justice John Roberts, who authored the unanimous opinion, noted the historic common law practice that a tax collector who seizes a taxpayer’s property is “bound by an implied contract in law to restore [the property] on payment of the debt, duty, and expenses, before the time of sale; or, when sold, to render back the overplus.”

In other words, Roberts wrote, “The taxpayer must render unto Caesar what is Caesar’s, but no more.”

In Illinois, county governments sell delinquent taxes, giving the purchaser a tax lien on the property and collecting interest from the homeowner on the tax debt.

If the owner does not redeem the property by paying the taxes and interest, the purchaser can petition the court for a deed to the property without compensating the former homeowner at all.

Illinois homeowners in the state’s top 11 most populous counties have lost almost $400 million in tax foreclosures between 2014 and 2021, according to research by the Pacific Legal Foundation. On average, these former homeowners lost 84% of their equity.

Among those counties studied across the country, Illinois suffered the highest number of homes taken under this scheme and, combined, lost the most equity in their homes.

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