Minnesota counties stand to lose millions after Supreme Court ruling

A person poses for a portrait
Darrin DeMars stands near the property in rural Hibbing that he lost to tax forfeiture. DeMars says he wasn't aware he owed about $1,500 in property taxes and fees until shortly before the county sold the land for nearly $33,000. DeMars, is suing St. Louis County, asking either for the excess money from the sale or the property back.
Kirsti Marohn | MPR News

From his farmhouse in Cherry Township east of Hibbing, Darrin DeMars can see the 32 acres the government took from him.

The vacant field, once pasture for his beef cattle, was seized by St. Louis County in 2017 after DeMars failed to pay $1,500 in property taxes. 

DeMars said he didn’t know about the tax bill until he saw a county employee taking photos of the property for auction in 2020. When he contacted the county about getting the land back, he was told it was too late. The county sold the land for about $33,000 later that year.

DeMars is now suing the county over the land sale and what he says is an unfair revenue generator for local governments. Minnesota is one of about a dozen states in the country where governments are allowed to routinely keep surplus revenues from forfeited sales. 

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In Minnesota, those forfeited properties generate millions of dollars that local governments use to run their operations, according to an analysis of public records by MPR News, APM Reports and the APM Research Lab.  

St. Louis County, for example, received $7.2 million in profit from the sale of forfeited properties from 2017 to 2022 — an average of more than $1 million a year. Those proceeds were distributed among the county, cities, townships and school districts, as prescribed by state law. 

The practice is now in question after a U.S. Supreme Court ruling in May. The court ruled that Hennepin County violated the constitutional rights of 94-year-old Geraldine Tyler when it sold Tyler’s Minneapolis condominium for $40,000. Since Tyler owed the county $15,000 in unpaid taxes, interest and penalties, the court ruled she’s entitled to the remaining proceeds from the sale. 

“Everyone realizes that things need to change after Tyler, and we’re seeing a lot of momentum to change in states across the country,” said Jim Manley, deputy director of state legal policy at the nonprofit Pacific Legal Foundation, which represented Tyler and is still involved in eight other forfeiture-related lawsuits. 

DeMars’ lawsuit against St. Louis County seeks the surplus the government made when it sold his property. The land is just a sliver of the millions of acres of tax-forfeited properties across Minnesota. 

“I haven’t stopped trying to figure out a way to get it back,” he said.

Ruling creates a ‘holding pattern’ in counties

The Tyler decision, along with lawsuits property owners subsequently filed against Minnesota counties, has created a lot of uncertainty. Many counties, including St. Louis, have paused selling tax-forfeited lands as they await answers.

One lingering question courts and lawmakers still need to decide is what the statute of limitations should be for former property owners to seek compensation. 

Usually, it’s six years for constitutional claims, Manley said. But attorneys representing former property owners likely will push for longer.

Another question is how to handle long-ago forfeited land that’s become a significant source of income for local governments.

In northern Minnesota, counties manage 2.8 million acres of tax-forfeited property on behalf of the state. Most of the land was abandoned decades ago by timber or mining companies.

DeMars’ lawsuit alleges St. Louis County used the properties it seized to generate more revenue for itself by routinely selling leases for timber rights or other uses.

“These leases total millions of dollars per year and are generated by properties that (the county) unlawfully took without just compensation,” the complaint alleges.

U.S. Supreme Court building during the day
A unanimous Supreme Court gave a 94-year-old Minneapolis woman a new chance to recoup some money after the county kept the entire $40,000 when it sold her condominium over a small unpaid tax bill.
Alex Brandon | AP

St. Louis County has about 900,000 acres of tax-forfeited rural land that it manages for timber, minerals and conservation, said Brian Fritsinger, deputy county administrator. 

Fritsinger said the lands provide jobs and revenue for local industries, as well as tourism and recreation opportunities. The economic benefit is “pretty significant,” he said.

The county has a land and minerals department with 50 employees who manage those forfeited properties, Fritsinger said. That could change, depending on what new rules the state develops, he said.

“Until then, we’re just kind of in this holding pattern,” Fritsinger said.

Tracking down the original owners of some of the tax-forfeited properties would be difficult, he said, because they’ve been in government possession for as long as 100 years. 

Counties in limbo

Smaller counties might feel even more of a financial pinch. 

Along with managing nearly 40,000 acres forfeited decades ago, Pine County also seizes about 20 new properties every year, and tries to resell those within a year or two, said Kelly Schroeder, county auditor-treasurer. 

But that can take work. Many are blighted, with garbage and other junk left behind, she said.

“A lot of them are just abandoned,” Schroeder said. “The people — we try to find them and we can't find them, and a lot of times we find out they’ve passed away.”

The uncertainty from the court’s ruling has forced Pine County to recalculate its finances. Schroeder said she dramatically scaled back anticipated revenue from land and timber sales in next year’s budget from $250,000 this year.

“I initially put a big old zero in there for tax-forfeit land sales,” she said. Since then, she’s added $50,000 in revenue next year from timber sales only.

Schroeder is part of a group of Minnesota county officials that’s been meeting regularly since the Tyler decision to help craft proposed changes to the state’s forfeiture process, which they hope lawmakers will pass in the upcoming session.

A fix will involve a dramatic rewriting of state statutes, said Matt Hilgart, government relations manager for the Association of Minnesota Counties.

“This is truly throwing out a significant amount of the state’s tax forfeiture statutes … and starting anew,” he said. 

There’s a lot that policy makers need to sort out, including how to determine a property’s worth. In some cases, counties are selling forfeited properties at auction for much less than their fair market value, Hilgart said, so it’s not clear how to calculate how much the former owner is entitled to.

County officials are debating what a new forfeiture system should look like, including how to make the process transparent to property owners, Hilgart said. 

“If we have a once-in-a-lifetime opportunity to clean things up and make it easier for folks going through this to understand what’s happening to them — and what are the on-ramps back to ownership — let’s do that,” he said.

An aerial photo
An aerial photo shows Geraldine Tyler's condominium in Minneapolis.
Kerem Yücel | MPR News

Seeking ‘honest’ system

St. Louis County officials say they followed the forfeiture process outlined in current state law.

In DeMars’ case, that included publishing notice of the impending forfeiture in the newspaper and sending it by certified mail to DeMars’ current address, Fritsinger said.

The notice was returned “for reasons unknown,” but that’s not a valid legal excuse to postpone forfeiture, Fritsinger said. And because the property wasn’t occupied, they weren’t required to serve the notice in person.

DeMars said he hopes his lawsuit will help spur a fairer, “more honest” system. Rather than profiting from forfeiture, he thinks counties should be willing to work with people who owe property taxes. 

And he said he wants the county to return the surplus value from the property the county seized from him. 

“Either the property or the money — one or the other,” DeMars said. 

For a deeper dive into how revenue from the sale of tax-forfeited properties varies by county, see additional reporting by Alyson Clary from APM Research Lab.