Rarely does the Supreme Court cite the Magna Carta, but it did so in Tyler v. Hennepin County, Minnesota, 143 S.Ct. 1369 (2023), for the principle that a government may not take more from a taxpayer than is owed.
Last month, the United States Supreme Court held that retaining the excess value of a taxpayer’s home sold at a tax-sale auction for a sum exceeding the tax debt violates the Takings Clause of the Fifth Amendment to the United States Constitution. The Supreme Court’s ruling has broad ramifications for tax sales conducted throughout the United States under statutes that permit municipalities to keep surplus money arising from such tax sales, rather than disbursing the surplus to the taxpayer or lienors such as the taxpayer’s mortgagees or judgment creditors.
The facts in Tyler are simple. The Petitioner, Geraldine Tyler, owned a condominium. Hennepin County imposed an annual property tax on Tyler’s condominium. She was delinquent in paying her property taxes, which resulted in a tax lien against her condominium.
To satisfy the tax lien, Hennepin County was authorized to bring a tax-lien foreclosure against Tyler’s property under statutory procedures and the due-process requirements of the United State Constitution. Tyler did not object to the procedures used to foreclose the tax lien, or to the transfer of her ownership to Hennepin County. Her objection was that Hennepin County sold her property for $40,000.00 to satisfy a $15,000.00 debt and kept the excess of $25,000.00.
Tyler filed a putative class action suit against Hennepin County, asserting that the County had unconstitutionally kept the $25,000.00 excess. She asserted that this violated the Takings Clause of the Fifth Amendment to the United States Constitution. She argued that a governmental agency had taken her property – her home’s equity – without just compensation, an essential protection guaranteed by the Fifth Amendment. Tyler clearly had equity in her home – the difference between the sales price and the amount owed for unpaid taxes. Allowing the County to keep the excess was akin to theft of her home equity.
The Supreme Court determined that permitting governmental entities to keep surplus money under such circumstances constitute a taking without just compensation in violation of the Fifth Amendment. Hence, the Court’s statement that a “[t]axpayer must render unto Caesar what is Caesar’s, but no more.” 143 S.Ct., at 1380.
EFFECT ON NEW YORK TAX SALES
The Tyler decision will likely have an immediate impact on municipalities with similar statutory schemes, including a number in upstate New York. Those municipalities typically employ statutory in rem actions to foreclose unredeemed tax liens. Yearly auctions are held and numerous properties are sold at one time. A number of applicable statutes permit the foreclosing governmental entity to keep any surplus paid at auction. The tax lien is duly satisfied, but the taxpayer gets none of the surplus.
The Supreme Court seems to have put an end to these statutory windfalls. Its ruling will undoubtedly lead to legislative action and court challenges, likely resulting in surplus money being distributed to taxpayers, mortgagees and other lienors, and not to fully compensated taxing authorities.
It should be noted that, rather than keeping surplus money from a tax sale, many downstate counties in New York follow procedures similar to those applicable in mortgage foreclosures to determine how surplus money should be distributed. See Real Actions and Proceedings Law §1355, and New York City Administrative Code §11-335.
Although some may find it hard to believe that the Supreme Court acted unanimously (or correctly), but it did so in this instance in what should bring an end to such blatantly unjust government action still authorized in a number of states.1
Floyd G. Grossman, Esq. and Michael J. Spithogiannis, Esq. each have over 35 years’ experience litigating commercial and real-property disputes in state and federal courts throughout New York.
Weiss Zarett Brofman Sonnenklar & Levy, P.C., is a Long Island law firm providing a wide array of legal services to the members of the health care industry, including corporate and transactional matters, civil and administrative litigation, healthcare regulatory issues, bankruptcy and creditors’ rights, and commercial real estate transactions.
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1. Justice Neil Gorsuch filed a concurring opinion, to which Justice Ketanji Brown Jackson concurred, opining that Minnesota’s governmental action also violated the Eighth Amendment’s Excessive Fines Clause. However, because the Petitioner had agreed that she had a complete remedy under the Fifth Amendment, the Court’s majority did not decide whether her claim also violated the Eighth Amendment.