Lew Sichelman

Every homeowner pays property taxes. At least, they should. But sometimes, people can’t – or won’t – pay the piper, and the tax collector comes calling.

Local taxing authorities can take your house and sell it to obtain their due. But if the house fetches more than what you owe, the Supreme Court has now ruled that the authorities can’t keep the difference.

That’s contrary to the rules in more than 20 states, which allow what the nonprofit Pacific Legal Foundation calls “home equity theft.” A dozen states, and the District of Columbia, allow tax collectors to keep everything they can get for your place, even if you owed far less, and nine others permit it under certain circumstances.

But in a rare unanimous ruling, the nation’s top court has put the kibosh on the practice.

“The taxpayer must render unto Caesar what is Caesar’s, but no more,” wrote Chief Justice John Roberts in his opinion on Tyler v. Hennepin County, noting that the practice violates the takings clause of the Fifth Amendment.

Now, warns PLF’s Jim Manley, if the offending jurisdictions don’t change their laws, “they could face damages in the millions in future lawsuits.”

Industry Groups Pushed for Ruling

The National Association of Home Builders and the National Association of Realtors both filed amicus briefs for the case, and both celebrated the decision.

“No longer can localities seize windfalls on the excess proceeds from tax sales,” said the NAHB in a statement on its website.

PLF, which has been fighting equity theft for years, brought the case to the high court on behalf of 94-year-old Geraldine Tyler, who owned a small one-bedroom apartment in Hennepin County, Minnesota. After moving to an assisted living facility, she fell behind on her property taxes to the tune of $2,300 – plus $12,700 in penalties.

The tax collector pounced: The county seized the apartment, sold it for $40,000 and kept every dollar – a difference of $25,000, give or take. Pure gravy for the county.

But the Supreme Court ruled that when the government takes someone’s home equity to satisfy a property tax debt, it violates the takings clause, which bars the government from snatching private property without providing just compensation.

Writing for the 9-0 decision, Roberts said, “A taxpayer who loses her $40,000 house to the state to fulfill a $15,000 tax debt has made a far greater contribution to the public fisc than she owed.”

And in a concurring opinion, Justice Neil Gorsuch, joined by Justice Ketanji Brown Jackson, wrote that the practice may also violate the Constitution’s excessive fines clause, which limits the amount governments can take as punishment.

“Economic penalties imposed to deter willful noncompliance with the law are fines by any other name,” Gorsuch wrote. “And the Constitution has something to say about them: They cannot be excessive.”

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com.