These 12 States Can Seize Your Home Over Delinquent Property Taxes

Authored by Petr Svab via The Epoch Times (emphasis ours),

It was a dream come true—or rather about to come true—when the Halls bought their forever home. It had everything they needed and more: five bedrooms, four bathrooms, a family room, a dining room, a roomy garage, good schools, and a good neighborhood. Sure, a fixer-upper, but they felt up to it. Prentiss Hall, a home improvement contractor, made it his life project, and everybody lent a hand—his wife, Tawanda, and six children, cousins, and friends.

“We were really excited,” Tawanda told The Epoch Times.

They negotiated the price down to $67,000—a bargain, perhaps, but the home demanded a daunting amount of “tender love and care.”

“The house had been sitting there for a while. I guess it had mold in it, and it needed new windows and doors and electric,” Tawanda said.

“The city made us get all kinds of permits to get the house up to code. So we went in there and just started working.”

It took about a year before they were able to move into the home in the quiet Detroit suburb of Southfield, Michigan. And it was several years before they felt “comfortable” with it, she said.

The result was worth it.

“It was a dream home. It was big enough … for our family to be there, we had plenty of rooms, big enough to have our holiday dinners, and everyone can come and be comfortable,” she said.

For a Detroit girl, it was nice to have a peaceful place to live, away from all the noise and hustle.

“We just hoped and planned to stay and grow and raise grandchildren and, you know,” she paused.

“But—,” her voice trailed into a sigh.

Shattered Dreams

Several years in, the Halls got into financial trouble. Tawanda’s handicapped brother and her sick mother moved in with them even as all their money still went into improving the house.

“We just had a lot of things happening at once,” she said. “Before I knew it, I was behind on all my taxes.”

Property tax on the 3,700-square-foot home ran over $5,000. In a few years, the debt ballooned to over $22,000, including interest and fees.

In February 2018, Oakland County foreclosed on the home.

The next month, the county put the Halls on a payment plan of $650 a month intended to allow them to get the house back. They prepaid a few months in advance and were told that they don’t need to worry about timely payments as long as they caught up on the payments by February 2019, according to court documents reviewed by The Epoch Times (pdf, pdf).

In June 2018, however, the county suddenly transferred the property to the city of Southfield, which had a preferential right to buy foreclosed properties for the price of the debt.

The Halls were informed they had to move out.

Four months later, the city gave the property to a private company, Southfield Neighborhood Revitalization Initiative, for $1.

In early 2020, the house was put on the market and then sold for more than $300,000.

To the Halls’ shock, they learned they were not entitled to a single penny of that payout.

“I feel like someone stole from me and my family,” Tawanda said.

Less than a month later, Prentiss Hall passed away. Loss of the house put him under enormous stress, and his health deteriorated, she said.

Widespread Problem

Thousands of Americans have been put in a similar position—losing their homes and other properties over tax debts that only represented a small fraction of the property value.

In most of the country, such a practice is illegal. Local authorities are allowed to foreclose on properties over unpaid taxes, but they are required to sell them and return the owners everything above what they owe.

There are 12 states plus the District of Columbia that allow governments to keep the whole property and all sales proceeds: Maine, Massachusetts, New York, New Jersey, Illinois, Alabama, Minnesota, South Dakota, Nebraska, Colorado, Arizona, and Oregon.

Another nine states have various loopholes, mostly allowing the government to keep such properties for public use (like in Alaska, California, Idaho, Nevada, Ohio, and Rhode Island). Montana allows the government to keep all proceeds from the sale of commercial properties, not residential ones. Texas allows governments to sell properties at a discount in some circumstances. Wisconsin allows governments to keep the properties, but if they sell them, excess proceeds go back to the original owners, according to Pacific Legal Foundation (PLF), a nonprofit that has been tracking and litigating the issue.

Between 2014 and 2021, this practice has cost homeowners over $860 million in home value—equity—spread over some 6,200 homes. But those are only the cases PLF was able to document by looking at the more populous counties in the 12 states and only at homes for which there was enough information available. For thousands more, there wasn’t enough information. And there are untold more the PLF hasn’t looked at yet.

Most of the lost equity was wasted by selling the houses at a deep discount. About $30 million actually ended up in government coffers, while another about $280 million was pocketed by private investors that buy property tax debt from governments and then foreclose on the homes and sell them, based on data from nearly 4,700 property sales.

Legal Battle

For PLF lawyer David Deerson, the issue boils down to theft.

“It’s true that the government can take your property with few limits, but one of the limits is, whatever it takes, it has to pay you for it,” he told The Epoch Times.

Governments have been defending the practice on “legalistic” grounds, in his view.

“It’s commonly understood that property rights are not created by the Constitution. They’re protected by the Constitution, but they’re created by other sources of law, such as state law.”

Thus, governments have argued property owners don’t own the value of a property in excess of a debt unless the specific state law says so.

“There can’t be a property right in equity because if you look at the way the statutes are written, they don’t provide you with a chance to get your equity back,” Deerson explained the argument.

PLF and a lineup of legal and advocacy groups across the political spectrum disagree.

“In every single other context you can possibly imagine, equity is treated as a property right,” he said.

In a divorce, equity in a home is treated as part of the wealth being divided. In a private foreclosure, the bank cannot take a penny beyond what it’s owed.

“Of course, they have to pay you back the surplus equity. Why? Because you have a property right to it,” Deerson said.

“Equity isn’t treated as a property right only if it’s the government itself trying to take it.”

In 2020, PLF secured a ruling by the Michigan Supreme Court that outlawed the practice of governments keeping extra proceeds from tax foreclosures in the state. That should have resolved Tawanda’s case, but the government has continued to litigate the issue in federal courts.

In October, the U.S. Court of Appeals for the Sixth Circuit, which covers Michigan, ruled the practice unconstitutional, but the state government appealed to the U.S. Supreme Court, leaving the case pending.

Earlier this year, the Supreme Court announced it would pick up a similar case in Minnesota, where a 94-year-old grandmother lost her condo over some $15,000 in unpaid taxes and fees. The local government sold the condo for $40,000, again keeping every penny.

PLF is in the process of arguing the case before the Supreme Court, with the first hearing scheduled for April 26.

The case, Tyler v. Hennepin County, could decide the fate of Tawanda Hall and thousands of others.

“I’m hoping that they can change the law because it’s unfair to a lot of families who put their lives into their homes,” Tawanda said.

‘Wrong’ Argument

While the issue may seem clear-cut, courts have been split on it for decades.

In Nebraska, for example, the state’s Supreme Court has affirmed the practice. So did, last year, the federal appeals court for the Eight Circuit, which covers several states that allow the practice—Nebraska, South Dakota, and Minnesota.

It was the split between the Sixth and Eight Circuits, both stemming from PLF cases, that likely prompted the Supreme Court to pick up the issue, according to Deerson.

He didn’t think the Nebraska Supreme Court was malicious in its ruling.

“We just think the court got it wrong,” he said.

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