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A Common Law Protection against the Property Tax

Property taxation is a powerful tool for public finance. Apart from the more esoteric advantage of avoiding a deadweight economic loss, a property tax is secured by collateral. In theory, failure to pay even a dollar owed on a million-dollar tract of land’s property tax liability ultimately entitles the government to seize and sell the land in question. To minimize this inequity, the government’s share of the proceeds in any such sale is limited to the tax liability and the costs of executing the sale. The taxpayer (and any other party who holds a property interest in the property) is then due to receive the rest. In California, this is assured by section 4674 of the Revenue and Taxation Code. Thirty-five other states also guaranteed this right, but the Supreme Court expanded it to the remaining fourteen states without the need for those states to pass any laws themselves. In doing so, the Court acknowledged property rights that exist regardless of written law.

The facts of Tyler v. Hennepin County could scarcely have been more favorable to the taxpayer. Ms. Tyler is a 94-year-old grandmother who lives in an assisted living facility. In moving there, she left her condominium unoccupied. She accrued a property tax liability of $2,300 with a further $13,000 owed through interest and penalties. There was also a mortgage of $49,000. The county Ms. Tyler’s condo was located in, Hennepin County, Minnesota, took and sold the property for $40,000 in a tax default sale and kept all proceeds. Chief Justice John Roberts wrote for the Supreme Court, finding that the county’s actions violated the Federal Constitution’s Takings Clause. Hennepin County argued that the taxpayer lacked any equity and, therefore, any property interest in the condominium. The District Court and the 8th Circuit agreed, holding that state law regarding property rights steers the Takings Clause.

However, The Supreme Court reversed the decision of the lower courts, finding that Ms. Tyler still had a property interest for both for standing and a Takings Clause claim. Yet the Court took a different approach for each. For both, the county argued that all property interests in a property are forfeited upon defaulting on property taxes according to Minnesota law. In countering the standing argument, the Court noted that a tax sale under Minnesota law clears the property of all other encumbrances, yet the taxpayer remains personally liable for any private debt on the property. The Supreme Court found this personal liability in Minnesota case law, leading The Court to hold that Ms. Tyler would have financial harm and therefore standing because the proceeds could have reduced her debt. If taking property results in financial harm, this implies a right to that property to the person being harmed. Otherwise, it is possible to suffer legally cognizable harm through the deprivation of property one never had an interest in. According to Minnesota law, Ms. Tyler forfeited her property interest in the condominium once she defaulted. Once again that cannot be so as Minnesota law creates financial harm in the seizure by recognizing her personal liability for the debt that would have been partially satisfied but for the seizure. If this syllogism is enough to find constitutional standing, it should be enough to establish a Takings Clause claim. Interestingly The Court took a different course.

Instead of finding that Ms. Tyler has a Takings Clause claim for the same reason she has standing, the Court had an announcement: The Takings Clause recognizes property rights beyond the reach of state law. State law is an important source for discovering property rights protected by the Takings Clause, but it is complementary and therefore does not fully replace the common law.[1] Chief Justice Roberts drew a direct line from the Magna Carta to this case and was much persuaded by the fact that Minnesota’s practice was rare when the Constitution and the Fourteenth Amendment were ratified. The Court charted through centuries of statutes and found that “[t]he minority rule then remains the minority rule today.” In addition to tallying the stances of the states toward this issue, the Court measured the duration of these positions and found that states that took Minnesota’s view usually changed their minds after a generation of experimentation to conform with the majority. Tyler then applied prior Supreme Court precedent, requiring the opportunity for the taxpayer to receive the excess amount in tax sales and was further swayed by the fact that Minnesota’s surplus retention policy is unique to its property tax. Private foreclosures in Minnesota on the other hand must remit the surplus to the debtor, and tax sales resulting from taxes other than the property tax must also return the excess to the taxpayer. Minnesota’s remaining argument that property tax delinquency amounts to property abandonment was swiftly dismissed for lack of any legal support.

The Supreme Court rejected the 8th Circuit’s reasoning that Ms. Tyler could redeem and sell her condominium to the same effect as the Takings Clause. Stating, “requiring a taxpayer to sell her house to avoid a taking is not the same as providing her an opportunity to recover the excess value of her house once the State has sold it.”

Justice Gorsuch wrote separately to address the question of the Excessive Fines Clause, and Justice Jackson joined the concurrence. Chief Justice Roberts refrained from deciding on the application of the Excessive Fines Clause. However, the concurring opinion felt behooved to correct the district court’s analysis of the issue. Instead of the district court’s primary purpose test, Justice Gorsuch quoted precedent to observe that the Excessive Fines Clause applies to any law that “cannot fairly be said solely to serve a remedial purpose.”

Although a victory for Ms. Tyler, Tyler v. Hennepin County is also a victory for mortgagors and other lienholders in tax default sales. While the Supreme Court recognized that Ms. Tyler’s creditors may still hold Ms. Tyler personally liable for the debt, this right is significantly less valuable than the option of seizing collateral. From that perspective, the lienholders also suffered financial harm and could have challenged Hennepin County. However, a bank seeking recovery from a 91-year-old woman by suing a county to claim proceeds owed to it from a tax default sale, effectively forcing the government to foreclose on the debtor for the bank’s benefit, might have different results.  

If you have questions or concerns about how these news reports may affect you or your business, please contact The Burton Law Firm at: 916-822-8700 or email for a consultation.

[1] In Tyler’s words, “’traditional property law principles’ plus historical practice and this Court’s precedents.”