On May 25, the Supreme Court ruled in Tyler vs. Hennepin County that home equity theft — when a local government takes the entire value of a home to satisfy a smaller property tax debt — is unconstitutional. Now states that practice home equity have theft two choices: reform their laws or face millions of dollars in damages from future lawsuits.
According to a report by my law firm — Pacific Legal Foundation (PLF) — 20 states and Washington D.C., including New Jersey, allow home equity theft in some form. In New Jersey, cities and towns sell tax liens on delinquent properties to private investors or the government. An investor can file a foreclosure lawsuit after two years. But if the government holds a lien, it can file after six months. After foreclosure, the lienholder can sell the property and keep the profit.
On May 30, PLF sent letters to these states, demanding that they change their laws to comply with the Supreme Court’s ruling. PLF also published guidelines and model policy to help these states reform their laws, and pledged to offer legal assistance to legislators who request it.
New Jersey should follow Nebraska’s lead. Legislators there saw the writing on the wall after PLF’s win in Tyler and passed into law Legislative Bill 727, which ended home equity theft in the state.
The Supreme Court’s ruling was clear: home equity theft violates the Constitution’s Takings Clause, which bars the government from taking private property without just compensation. If states like New Jersey don’t change their laws to comply with this ruling, property owners can now bring lawsuits to recover equity that is stolen from them.
Writing for the Court in a 9-0 decision, Chief Justice Roberts said “A taxpayer who loses her $40,000 house to the State to fulfill a $15,000 tax debt has made a far greater contribution to the public fisc than she owed. The taxpayer must render unto Caesar what is Caesar’s, but no more.”
The Chief Justice was referring to Geraldine Tyler, a 94-year-old Minnesota grandmother who fought all the way to the Supreme Court to end home equity theft.
In 2010, Geraldine fell behind on the property taxes for her one-bedroom condo after she moved into a senior living apartment. As the penalties and interest mounted, Geraldine’s debt grew to $15,000. County officials then seized her condo and sold it for $40,000. Then, rather than refund the $25,000 difference to Geraldine, the county kept it all.
Such stories are surprisingly common. In fact, PLF found that from 2014 through 2021, at least 8,950 homes and more than $860 million in life savings were lost to home equity theft. In New Jersey, at least 650 homes were taken, and homeowners lost, on average, 90% of their equity. And while every story is different, certain patterns are consistent.
For example, the tax debts are typically relatively piddling amounts — in one infamous case from Michigan, county officials seized and auctioned off Uri Rafaeli’s home after he underpaid his property taxes by a meager $8.41. And in many cases, the targets of home equity theft are vulnerable — seniors on fixed incomes; people struggling with health issues or mental infirmities; families faced with job loss or other economic difficulties.
In taking Geraldine’s case to the Supreme Court, PLF was standing up for all these victims of abusive forfeiture policies.
PLF has fought to end home equity theft for the better part of the last decade, and we’ve made serious progress in convincing states to end this abuse of their citizens. And the Supreme Court’s unanimous decision has put great pressure on state legislatures to end the practice once and for all.
But states or localities are already attempting to circumvent the Supreme Court’s ruling and are continuing to profit off the misery of citizens. PLF will continue to shine a spotlight on these abuses, fighting them in court and in state capitals.
