NAR Defends Home Equity Interests Before the Supreme Court

On March 6, NAR filed an amicus brief in a case pending before the Supreme Court of the United States in Tyler v. Hennepein County, a case involving a Minnesota statute that allows the government to seize a homeowner’s property to satisfy a government debt and keep any surplus from the sale in excess of the debt owed as a windfall. NAR, along with the American Property Owners Alliance and the Minnesota REALTORS®, filed the amicus brief in support of the property owner’s entitlement to the surplus equity, arguing the state statute effectuates an unconstitutional taking of private property under the Fifth Amendment. NAR urges the Supreme Court to reject the Eighth Circuit’s decision and the problematic state foreclosure statute in favor of upholding constitutionally protected private property rights.

In this case, an elderly Minnesota homeowner is seeking to recover the excess proceeds from the state sale of her property in the amount that the proceeds from the sale exceeded the tax debt owned. The homeowner bought her condominium in 1999, and in 2010, moved out and stopped paying property taxes that she owed, amounting to $15,000. Once the tax became delinquent, the County followed its statutory procedure to obtain a judgment against the property and purchased the condo for the amount owed, vesting title in the state subject to the right of redemption by the homeowner, which was not exercised. The County took absolute title to the condo in July 2015 through final forfeiture and sold the condo for $40,000 four months later. Because the tax deficiency was cancelled at the time of final forfeiture, the net proceeds from the sale of the condo were not applied to the unpaid taxes and instead followed a statutory distribution plan that included allocation of funds for city needs rather than returning the proceeds to the homeowner. 

The homeowner sued the County, alleging that the retention of the $25,000 surplus equity constituted an unconstitutional taking under the Fifth Amendment and unconstitutional excessive fine under the Eighth Amendment. In 2020, the U.S. District Court for the District of Minnesota dismissed Plaintiff’s complaint for failure to state a claim, and in February of 2022, the U.S. Court of Appeals for the Eighth Circuit affirmed the dismissal, concluding that Plaintiff could not claim a property interest in the excess proceeds, therefore the County’s actions did not violate the Takings Clause or the Eighth Amendment’s protection against excessive fines. The Eighth Circuit essentially reasoned that a government entity cannot effectuate a taking of property unless the plaintiff has a valid property interest in the property taken.

On August 19, 2022, the Plaintiff filed a petition for writ of certiorari to the U.S. Supreme Court, which was granted on January 13, 2023. The issues before the Court are: (1) whether taking and selling a home to satisfy a debt to the government, and keeping the surplus value as a windfall, violates the Fifth Amendment's 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.

Focusing on the Fifth Amendment question, NAR argues that the Eighth Circuit wrongly decided the case based on two primary issues. First, the lower court focused solely on whether the homeowner had a property interest after the taking already had occurred, rather than whether she also had a property interest before the taking occurred. Case law dictates that whether a taking occurred depends on the state of affairs immediately preceding and following the alleged taking. And here, the Eighth Circuit ignored the homeowner’s equity interest prior to the taking, examining the interest only after the state took absolute title. Second, the Eighth Circuit ignored Supreme Court precedent when holding that Minnesota law can abrogate the longstanding rule that surplus proceeds belong to the landowner who previously held equitable title. In its narrowed analysis, the Eighth Circuit passed over common-law rulings holding that states may not transform private property into public property without concern for formerly vested rights and without just compensation.

NAR, The Alliance, and the Minnesota REALTORS®, also argue more broadly against governments increasing encroachment on private property rights without considering Takings Clause implications such as with the recent eviction moratoria and rent control laws being imposed, in addition to inequitable state foreclosure laws. The Wisconsin REALTORS® also filed an amicus brief in defense of homeowners’ equity given their own state judicial rulings rejecting takings claims.

NAR will continue to defend private property ownership and homeowners against government infringement of those rights. Stay tuned to nar.realtor for more information on defense of these rights and this case.