When a county seizes a home over taxes, who should get to keep the equity?

An aerial photo
An aerial photo taken this month shows Geraldine Tyler’s former condominium in Minneapolis.
Kerem Yücel | MPR News

The U.S. Supreme Court is scheduled to hold oral arguments Wednesday on a property rights case involving a Minnesota woman who had her condominium seized and sold by Hennepin County after she failed to pay five years of property taxes.

Geraldine Tyler
Geraldine Tyler
Courtesy of Pacific Legal Foundation

The case centers on Minneapolis resident Geraldine Tyler, who failed to pay $15,000 in taxes and fees on her condominium. The government seized the property in 2015 and sold it in 2016 for $40,000.

At issue is who has the right to the remaining $25,000 left over from the sale. Lawyers for Geraldine Tyler argue the equity should go to her.

“If the government takes your property for public use, it owes you money,” said Tyler’s attorney, Joshua Polk. He’s also arguing that the county taking more than is needed is an excessive fine, which would be unconstitutional.

But Hennepin County officials say the issue isn’t that simple. They argue the government loses money on tax-forfeited properties because they have to maintain and prepare it for sale.

The court's ruling could upend how Minnesota and 11 other states collect the profits from the sale of tax-forfeited properties. A lobbyist for local government says a ruling against the county would have a devastating impact on local taxpayers.

Hennepin County seized 571 properties through the state forfeiture law between 2013 until 2022, according to county records. An MPR News analysis of the data found that roughly 1 in 3 of the properties sold by the county generated additional equity above what the homeowner owed in taxes and fees. However, the county has overall lost money by seizing and selling tax-forfeited property since 2013.

Legal experts say a ruling in Tyler’s favor could have impacts beyond tax forfeitures. They say any regulation involving property rights could be challenged, even those designed to help low-income residents.

Tyler’s attorney: Seizing property is ‘home equity theft’

Tyler purchased her one-bedroom condo in Minneapolis in 1999. She regularly paid her property taxes until she moved to an apartment in 2010 due to concerns over increased crime in the neighborhood. After her move, Tyler didn’t pay her property taxes between 2011 and 2015, according to court documents. Hennepin County notified Tyler that she was delinquent on her taxes and allowed for a three-year period of redemption to pay the debt. The government eventually seized Tyler’s property and sold it in 2016.

Tyler sued the county in 2019 for keeping the outstanding equity of her property, but she suffered a setback in the lower courts. The 8th U.S. Circuit Court of Appeals rejected Tyler’s argument in 2022.

The Pacific Legal Foundation joined the suit and appealed her case to the U.S. Supreme Court last August. Polk said they were “on the lookout” for a case like Tyler’s that would be “well-positioned” if it were to end up in the Supreme Court.

It’s one of several tax forfeiture cases the Pacific Legal Foundation has championed over the years. The nonprofit wouldn’t make Tyler available for an interview but they portray the 94-year-old grandmother as a poster child for their cause.

In an interview, Polk said it should “get the blood boiling” that the government would take away a grandmother’s property. His organization claims states annually confiscate hundreds of millions of dollars a year in equity from property owners. He characterizes the process as “home equity theft.”

“The reason why the local governments are engaging in this process is because they’re able to make money,” Polk said.

While the lower courts sided with Hennepin County, Polk is optimistic that the conservative majority on the U.S. Supreme Court will side with Tyler. The case has garnered support from other groups including Republican members of Congress, the U.S. Chamber of Commerce and the AARP.

A house in Itasca County
The Association of Minnesota Counties cites this Itasca County home as an example of the substantial costs counties incur to prepare tax-forfeited properties for resale. The home went into forfeiture in 2020 with about $3,100 in unpaid property taxes. The county spent about $44,000 to demolish the home and maintain the property, then sold it for $14,900.
Courtesy of AMC

Counties: Court setback would be ‘devastating’

While Tyler’s attorneys are attempting to portray her as the victim of an overzealous government, Hennepin County’s attorneys say Tyler had plenty of chances to keep her property.

Hennepin County declined repeated interview requests but the county’s attorneys argued in court that Tyler could have sold the condo herself, paid off the tax debt and pocketed the difference. They also say government assistance programs were available to help Tyler pay off her tax debt.

Assistant Hennepin County attorney Rebecca Holschuh told a federal appeals court in 2021 that “there is no right to a check in the mail.”

The county’s attorneys also argued in legal filings that Tyler wants the government to serve as “her real estate agent, sell the property on her behalf, and write a check for the difference between the tax debt and the fair market value.”

County officials also insist it isn’t making money off of the sale of tax forfeited properties.

An MPR News analysis of more than 500 tax forfeited properties in Hennepin County supports this claim. From 2013 to 2022, the county sold 452 properties for $15.6 million. It reported a net average loss of roughly $700,000 a year on tax-forfeitures.

In all but one year, the county is reporting that the money that it took in from selling and renting tax forfeited properties has not covered staff and administrative costs and the former owner's tax liabilities. In other words, the county, city and school district end up getting less money than if the taxes were paid on time and the properties weren't forfeited.

The largest outstanding tax bill on a single property in Hennepin County in the past 10 years was $544,000 but most of the bills were much smaller. The median outstanding tax bill was about $16,700.

And while two-thirds of the properties resulted in a loss to the county, there are instances in which the county has reported a profit on an individual sale. The largest amount of equity collected by the county on a single property was about $284,000 in 2017.

But some properties in forfeiture also need major repairs before sale. In worst-case scenarios, counties have to demolish dilapidated buildings because they are unsafe. If the law changes and counties can no longer recoup those costs, other taxpayers will have to foot the bill.

“The financial ramifications for Minnesota counties would be devastating,” according to a legal brief filed by the Association of Minnesota Counties.

State law requires counties to manage tax forfeitures. But counties don’t receive any state funding to help with the costs of seizing and selling these properties. Matt Hilgart, government relations manager for the Association of Minnesota Counties, said taxpayers will be forced to pay additional expenses if the court sides with Tyler.

“The Supreme Court case wouldn't just make a broken system worse for counties, it would just truly be just a devastating blow,” he said. “It would take out any semblance of ability that we have to try to cover even a portion of the debts.”

A win for Tyler could have ramifications beyond changing tax and property laws in Minnesota.

Julie Gilgoff, visiting professor of property law at Duquesne University in Pittsburgh, predicts the court will rule that the taking of the additional equity is unjust. She says that could open the door to challenges on other issues like rent control.

"The result of this case might be to broaden the court's reach to challenge various state regulations that they deem are depriving a homeowner of their property rights," she said.

County officials say the legal fight illustrates how the government is in a difficult position related to managing tax forfeitures. They need some power to force homeowners to pay their property taxes but they also don’t want to be in the position of selling the land.

“We're running social welfare systems, child protection systems, public health agencies,” Hilgart said. “The last thing that county governments want to be doing is being someone's realtor, that's not our job.”

APM Reports data journalist Jennifer Lu contributed to this report.