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  • April 19, 2023

    Can the Government Retain a Surplus in Takings Cases?

    On April 26, the U.S. Supreme Court will hear a case out of Minnesota concerning the government’s right to a windfall when taking private property – under the Fifth Amendment's Takings Clause – to satisfy a debt owed to the government.

    Aaron Earlywine

    stock photo of toy-size wood house with a pile of coins

    April 19, 2023 – On April 26, the U.S. Supreme Court will hear a case out of Minnesota concerning the government’s right to a windfall when taking private property – under the Fifth Amendment’s Takings Clause – to satisfy a debt owed to the government.

    Following years of tax delinquency, Hennepin County foreclosed on a condo owned by Geraldine Tyler. The county then sold the condo, covering its tax deficit, and making a net surplus in the process. Whether the county could retain the surplus is the issue.

    This article summarizes the pertinent details of the case, and history of Tyler v. Hennepin County, which may have future implications for foreclosures in Wisconsin.

    Little Condo on the Prairie

    Starting in 2010, 94-year-old Geraldine Tyler, through increasing property taxes and then associated fees, interest, and penalties that followed, ultimately amassed $15,000 in debt on her condominium to Hennepin County, Minnesota.1

    Aaron M. Earlywine Aaron M. Earlywine, a J.D. candidate at U.W. Law School (Class of 2023), is a contributing writer for the State Bar of Wisconsin. He can be reached at earlywine@wisc.edu or at (347) 515-0933, and is always looking for leads.

    In 2015, the county seized her condo and sold it for $40,000 to settle the property tax arrearage, while also keeping the $25,000 surplus.2 This windfall has become the focal point of a lawsuit that the U.S. Supreme Court will hear on April 26.3

    Broadly, Ms. Tyler, who is 94 years old, and her representatives, in filing a punitive class action, allege that the county’s actions amounted to an unconstitutional fine, and suggest that legal history “dating back to English tradition evinces a common law property right in any surplus from property foreclosed to satisfy government debts.”4

    Hennepin County, meanwhile, argues that the petitioner “relinquished any property right when she did not attempt to reclaim her home after its foreclosure sale, as permitted by Minnesota law,” and the statutes in question are remedial.5

    The U.S. Court of Appeals for the Eighth Circuit outlined the issues as follows:

    1. Whether taking and selling a home to satisfy a debt to the government, and keeping the surplus value as a windfall, violates the Takings Clause; and

    2. Whether the forfeiture of property worth far more than needed to satisfy a debt plus interest, penalties, and costs, is a fine within the meaning of the Eighth Amendment?’6

    Tyler’s counsel, the Pacific Legal Foundation, argues that the county’s action “is an egregious violation of fundamental property rights,” and a perpetuation of home equity theft, “at the expense of struggling property owners.”7

    Thus far, Ms. Tyler’s case has not been met favorably by the courts. The district court dismissed the matter for failure to state a claim, and the Eight Circuit affirmed the ruling on appeal.8 However, Tyler will get another opportunity at the U.S. Supreme Court.

    Important Holdings

    The following are notable excerpts from the Eighth Circuit’s opinion, penned by Judge Shepard Colloton and which affirmed the lower court’s dismissal, concluding “the district court carefully analyzed Tyler’s arguments and dismissed each count for failure to state a claim. We agree with the district court’s well-reasoned order and affirm the dismissal of these counts on the basis of that opinion.”9

    The court noted “the first step in evaluating a takings claim is to identify the interest in private property that allegedly has been taken.”10

    To that end, Tyler did not argue that the county lacked authority to take action and foreclose her condominium, but rather argued that the county’s retention of the surplus equity is an unconstitutional taking. “For Tyler to state a plausible claim for relief, she must show that she had a property interest in the surplus equity after the county acquired the condominium,”11 the court noted.

    Judge Colloton's opinion outlined the redemption and forfeiture process, highlighting “the statutory redemption period – which is three years for most properties – the former owner may redeem the property for the amount of delinquent taxes, penalties, costs, and interest,” and the requirement of notice to the delinquent owner though multiple channels.12

    The Eight Circuit also made a point to highlight that “a former property owner who wants to redeem but cannot afford to do so may make a confession of judgment.”13

    A confession of judgment allows a former owner to agree to an entry of judgment and consolidate tax delinquencies into a single debt that can be paid over 5 to 10 years.14

    Failure to redeem the property outright or to make a confession of judgment, results in final forfeiture which “vests ‘absolute title’ in the State and cancels all taxes, penalties, costs, interest, and special assessments against the property.”15

    With that process in mind, the Court’s assessment of the facts of the matter was as follows:

    When Tyler stopped paying her property taxes in 2010, Hennepin County followed Minnesota’s tax-forfeiture scheme to collect her delinquent tax debt of $15,000. Tyler received notice of the foreclosure action and failed to respond. In April 2012, the county obtained a judgment against Tyler’s condominium. Tyler then received notice of her right to redeem, but she did not exercise her right to redeem or confess judgment during the three-year redemption period. The State took absolute title to Tyler’s condominium in July 2015, and thereby cancelled Tyler’s $15,000 tax debt. Tyler did not apply to repurchase the condominium. The county then sold the property to a private party in November 2016 for $40,000. The county distributed the net proceeds pursuant to Minn. Stat. § 282.08.16

    The Eighth Circuit disagreed with Tyler’s reliance on a prior Minnesota Supreme Court decision, Farnham v. Jones, and held “that any common-law right to surplus equity recognized in Farnham has been abrogated by statute,” specifically in 1935 when “the Minnesota legislature augmented its tax-forfeiture plan with detailed instructions regarding the distribution of all “net proceeds from the sale and/or rental of any parcel of forfeited land.”17

    The Court found that “Minnesota’s current distribution plan provides how the county must spend the entire surplus, and it does not give the former owner a right to the surplus. Thus, even assuming Tyler had a property interest in surplus equity under Minnesota common law as of 1884, she has no such property interest under Minnesota law today.”18

    The Eight Circuit then turned to Nelson v. City of New York, 352 U.S. 103 (1956), wherein  “the Supreme Court addressed the constitutionality of a tax-forfeiture scheme under which the City of New York foreclosed real property for delinquent taxes, and retained the entire proceeds of the sale.”19

    The circuit court seemed to draw a parallel to the facts of Nelson, suggesting, “in that case, state law gave the property owners a right to redeem the property or to recover the surplus, but they took no timely action to do so.”20

    The circuit court’s analysis of the Supreme Court’s decision found that “‘nothing in the Federal Constitution prevents the government from retaining the surplus ‘where the record shows adequate steps were taken to notify the owners of the charges due and the foreclosure proceedings,’” and “Nelson’s reasoning on the Takings Clause controls this case despite a modest factual difference.”21

    Notably, Tyler’s appeal to the Supreme Court argues that the “Eighth Circuit improperly relied on Nelson ... because there, unlike here, the law provided the individual with an opportunity to reclaim the surplus proceeds.”22

    Conclusion

    Argument before the Supreme Court is slated for April 26, 2023.23 The Supreme Court’s decision could disrupt established proceedings and statutes and deprive governments of incidental beneficial remedial measures in the face of delinquency.

    Endnotes

    1 94-Year-Old Grandmother Fights Home Equity Theft in Minnesota, Pacific Legal Foundation (PLF).

    2 Dan Schweitzer, Case Granted Review: Tyler v. Hennepin County, MN, 22-166, Nat’l Assoc. of Att’ys Gen. (Jan. 30, 2023).

    3 PLF, supra note 1.

    4 Schweitzer, supra note 2.

    5 Schweitzer, supra note 2.

    6 Schweitzer, supra note 2.

    7 PLF, supra note 1.

    8 Tyler v. Hennepin County, Minnesota, Oyez.

    9 Tyler v. Hennepin Cnty., 26 F.4th 789, 794 (8th Cir. 2022) (citing Tyler v. Hennepin Cnty., 505 F. Supp. 3d 879, 895-99 (D. Minn. 2020).)

    10 Tyler, 26 F.4th at 792.

    11 Id.

    12 Tyler, 26 F.4th at 791.

    13 Id.

    14 Id.

    15 Id.

    16 Id.at 791-792.

    17 Id.at 793.

    18 Id.

    19 Id.

    20 Id.

    21 Tyler, 26 F.4th at 793 (quoting Nelson v. City of New York, 352 U.S. 103, 77 (1956).

    22 Schweitzer, supra note 2.

    23 Tyler v. Hennepin County, Minnesota, SCOTUSblog.




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    WisBar Court Review, published by the State Bar of Wisconsin, includes summaries and analysis of decisions from the Wisconsin Supreme Court, the Wisconsin Court of Appeals, and the U.S. Court of Appeals for the Seventh Circuit, as well as other court developments. To contribute to this blog, contact Joe Forward.

    Disclaimer: Views presented in blog posts are those of the blog post authors, not necessarily those of the Section or the State Bar of Wisconsin. Due to the rapidly changing nature of law and our reliance on information provided by outside sources, the State Bar of Wisconsin makes no warranty or guarantee concerning the accuracy or completeness of this content.

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