US Supreme Court mulls legality of a state's property tax 'windfall'

[April 26, 2023]  By Andrew Chung and John Kruzel

WASHINGTON (Reuters) - The U.S. Supreme Court on Wednesday is set to hear a 94-year-old woman's battle with a Minnesota county government that seized and sold her condominium to cover her unpaid property taxes and kept the proceeds beyond the amount she owed in a case testing constitutional checks on excessive fines and property seizure.

The justices are scheduled to hear oral arguments in an appeal by Geraldine Tyler of a lower court's ruling that threw out her proposed class action lawsuit accusing Hennepin County, which contains Minnesota's most-populous city Minneapolis, of violating her rights under the U.S. Constitution.

It is the last case scheduled to be argued during the Supreme Court's current term, which began in October.

The dispute concerns Minnesota's tax regime under which the state takes "absolute title" of a property if an owner fails to pay property taxes for five years. Under the regime, counties may keep any tax-delinquent property for a public purpose or sell it to other government entities or private buyers.

After covering expenses, any remaining proceeds are given to the local school district, city and county. None is refunded to the former owner.

Tyler has accused the county of violating the U.S. Constitution's Fifth Amendment bar on the uncompensated taking of private property by a government for public use and Eighth Amendment protection against excessive fines. Tyler's attorneys said in a court filing that 13 other states have similar policies that let government or private investors benefit when collecting delinquent property taxes.

In 2010, Tyler moved out of her one-bedroom condominium in Minneapolis and into an apartment building for elderly people. She then stopped paying taxes on the condo. The county said she refused other options to recoup the equity in her condo, including selling it, refinancing her mortgage or signing up for a 10-year tax payment plan.

She owed $15,000, including roughly $2,300 in property taxes, as well as penalties, interests and costs. The county foreclosed on her home and in 2016 sold it at auction for $40,000, which Tyler's lawyers at the Pacific Legal Foundation conservative legal group call a "$25,000 windfall for the public" at her expense.

The U.S. Supreme Court building is seen in Washington, U.S., April 6, 2023. REUTERS/Elizabeth Frantz/File Photo

Tax-forfeiture laws like Minnesota's are "especially pernicious for owners who have non-blameworthy reasons, including cognitive decline, physical or mental illness, or simple poverty," her lawyers said in legal papers.

The county said that, far from a windfall, tax forfeitures "do not break even." States have long permitted forfeitures of an entire property for neglecting to pay taxes, which are a reasonable condition of property ownership, the county said.

Tyler had five years and, it said, "At a certain point, enough must be enough."

The St. Louis-based 8th U.S. Circuit Court of Appeals last year upheld a judge's dismissal of the case.

President Joe Biden's administration backed Tyler's claim that the county engaged in an unconstitutional taking, recommending that the case be returned to lower courts to determine if her condo was worth more than her tax debt and other interests in the property, and thus eligible for compensation.

National associations representing cities and counties backed Hennepin County, noting that property taxes are a crucial source of revenue and that forfeiture is an important tool if taxes are not paid. The states of Minnesota, New Jersey and Oregon said in a filing that a ruling in favor of Tyler would hinder a state's ability to address blight and abandoned properties.

Rulings in this case and any others not yet decided by the Supreme Court are due by the end of June.

(Reporting by Andrew Chung and John Kruzel; Editing by Will Dunham)

[© 2023 Thomson Reuters. All rights reserved.]This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.