Forfeiture of Tax Sale Surplus Proceeds is a Governmental Taking

Supreme Court Holds Forfeiture of Tax Sale Surplus Proceeds is a Governmental Taking

“The taxpayer must render unto Caesar what is Caesar’s, but no more.”

Tyler v. Hennepin County, No. 22-166, Slip Op. at 14 (May 25, 2023)

Less than a month after oral argument, the United States Supreme Court ruled in a unanimous opinion that the Takings Clause of the United States Constitution limits how governments distribute amounts in excess of tax debts through their tax-collection process. The Court’s opinion is here. Although the case focused on Minnesota’s tax sale procedures, the Court’s opinion could have impacts on the distribution of surplus proceeds from tax sales across the country.

Background

Hennepin County seized on a delinquent taxpayer’s condo in 2015 to satisfy years of delinquent taxes amounting to roughly $15,000 in taxes, interest, penalties, and costs. Under the applicable state statutes, the title to the property was “forfeited” to the county as a result of the nonpayment, which differs slightly from a tax lien foreclosure or auction that occurs in other states. After a five-year tax-collection process, a third-party bought the condo for $40,000 from the county under Minnesota’s property tax statutes. As authorized by state law, the county kept the full amount of the bid — the delinquent taxpayer, the bank holding her mortgage, and her homeowners association holding a lien on her property did not receive any proceeds from that sale.

The delinquent taxpayer then filed a class action challenging Minnesota’s tax sale process. Both the trial and appellate courts rejected her claims, but the Supreme Court has agreed to hear her case to decide: Read more