A term grew popular to describe the government keeping this surplus over any tax obligation: “Home Equity Theft.”

Tyler sued, alleging the County unconstitutionally retained the excess value of her home above her tax debt in violation of the Takings Clause of the Fifth Amendment and the Excessive Fines Clause of the Eighth Amendment. The District Court dismissed the suit for failure to state a claim, and the Eighth Circuit affirmed.

On appeal the Supreme Court ruled that Tyler plausibly alleged the County's retention of the excess value violated the Takings Clause. This means the County had committed an unconstitutional Regulatory Taking, The decision reversing the Court of Appeals, authored by the Chief Justice with two concurrences, was unanimous. 598 U.S. 631 (2023).

Noteworthy are these takeaways now that taxation laws and practices can be the target of Regulatory Taking claims:

-Tyler's claim that the County illegally appropriated the $25,000 surplus constitutes a classic pocketbook injury sufficient to give her standing.
-The Court rejected the County's argument that Tyler had relinquished any interest in the surplus equity in her home due to her failure to pay property taxes.
-Whether the remaining value from a tax sale is property protected under the Takings Clause depends on state law, “traditional property law principles,” historical practice, and the Supreme Court's precedents.
-History and precedent dictated that, while the County had the power to sell Tyler's home to recover the unpaid property taxes, it could not use the tax debt to confiscate more property than was due.
-Doing so effected a “classic taking in which the government directly appropriates private property for its own use.”
-Today 36 states and the federal government require that excess value to be returned to the taxpayer whose property is sold to satisfy outstanding tax debt.
-The Supreme Court's precedents have long recognized the principle that a taxpayer is entitled to the surplus in excess of the debt owed.
-States have long imposed taxes on property. They are not themselves a taking, but are a mandated “contribution from individuals . . . for the support of the government . . . for which they receive compensation in the protection which government affords.”

After enunciating these findings and rulings, the Supreme Court quipped: “The taxpayer must render unto Caesar what is Caesar's, but no more.

As Minnesota's scheme provided no opportunity for the taxpayer to recover the excess value, as Tyler alleged a taking under the Fifth Amendment, and as she agreed that relief under “the Takings Clause would fully remedy [her] harm,” the Supreme Court ruled in her favor and struck down the Minnesota law, adding that the Court did not need to decide whether Tyler also established an excessive fine under the Eighth Amendment.

This ruling has sent many states, including Massachusetts, into fits of research and debate over whether their own property tax statutes and procedures will pass muster. Naturally, several pending lawsuits challenge these state laws and seek money. Also, curative amendments have been filed as state legislation.

In reaction to the Tyler decision, the Massachusetts Attorney General in 2023 published an advisory with a summary of the case, assessment of the similar Massachusetts statute, and practical suggestions for taxpayers, including where to get legal advice. Microsoft Word - Tax Lien Foreclosures Guidance_FINAL.docx (mass.gov)

Massachusetts’ Tax Lien Foreclosure Law

The Massachusetts Tax Lien Foreclosure Law, Chapter 60, is similar to the Minnesota law that the Supreme Court found to be unconstitutional. The Tax Lien Foreclosure Law creates a process through which Massachusetts homeowners with unpaid real estate taxes or water/sewer bills can lose their homes and any equity they may have in the property above the amount due for the unpaid taxes or bill (footnote omitted). This is true even if the property is worth much more than the taxes or water/sewer bills the homeowner owes to the municipality (footnote omitted). Under current law, the homeowner may lose all of the equity in their home, without getting paid for it, even if their home is worth more than the value of all the debts on the home, such as mortgages.

Massachusetts’ Tax Foreclosure Law is Unconstitutional under Tyler

The Attorney General’s Office's position is that the tax lien foreclosure process created by the Tax Lien Foreclosure Law is unconstitutional in light of the Supreme Court’s decision in Tyler (footnote omitted). It is important that homeowners, municipalities and third-parties who are involved in a tax foreclosure understand the effect of Tyler and take action to avoid the type of home equity taking that the Supreme Court declared unconstitutional.

Pursuant to the Tyler decision, Massachusetts municipalities and any third-party purchasers of tax liens may not take “more property than [is] due” without giving the homeowner “just compensation” (footnote omitted). Failure to observe this principle could result in liability for an unconstitutional taking. The legal ramifications are potentially significant and remain uncertain due to a number of pending cases in the federal and state courts.

To comply with the Tyler decision and to avoid an unconstitutional taking, municipalities and third parties should ensure that any excess funds recovered or excess value kept from a tax lien foreclosure—beyond the tax liability and any associated costs, interest, and late fees—are provided to the original homeowner.

Also in reaction to Tyler, the Massachusetts Land Court in 2023 issued on its website these suggestions for attorneys and taxpayers, including the conduct of Land Court proceedings and advice for persons facing tax foreclosures. download (mass.gov)

Property owners who are undergoing tax foreclosure should be aware of their right to claim compensation for their “home equity”—the excess value of the property above the amount of the tax debt. Cities, towns, and other plaintiffs bringing tax foreclosure cases will now need to ensure they comply with these constitutional protections and provide just compensation to property owners.

The Massachusetts legislature, municipal government officials, and the courts each are assessing the impact of the Tyler opinion on Massachusetts law and practice. There are a variety of ways the legislature might revise the tax foreclosure statutes in Chapter 60 to respond to Tyler. Several bills are pending.

In tax foreclosure cases pending before the Land Court, the court will address any motions or other pleadings that may be filed based on the Tyler decision. Other state laws, procedures, or mechanisms now in place may let property owners claim compensation for taken property, see e.g., Chapter 79.

If you are facing a tax foreclosure, you should talk to an attorney to learn more about your options, including how to keep your property (redeem) or claim compensation for your home equity. Redemption is an important option that allows property owners to avoid foreclosure and keep their property by paying all taxes, interest, and costs due in full or through a repayment plan.

If you cannot afford an attorney, you may be eligible for FREE legal advice or representation from a lawyer referred through the Land Court’s Tax Lien Foreclosure Legal Assistance Program.

The Supreme Court in Tyler v. Hennepin County, MN has taken its Regulatory Taking jurisprudence into the realm of state and local real estate taxes, resulting in several states moving to cure any constitutional infirmities. As of this writing, however, the curative bills in the Massachusetts Legislature’s Joint Revenue Committee have not progressed, but some indications are they may after January 2024.

As well, despite the Massachusetts Attorney General’s statement, no court here has yet declared the operative portion of Chapter 60 unconstitutional. Even if that happens, it would still behoove a taxpayer to be proactive and seek to sell their property prior to foreclosure, which likely will yield a higher sale price than at a forced sale.

In a Land Court case pending in January 2023, where the court has requested inputs on several matters under the statute, the Massachusetts Municipal Lawyers Association (MMLA) has weighed in with an amicus brief urging that there is a judicial process protecting the due process rights, missing in Minnesota, which should save one or more aspects of Chapter 60 from constitutional attack, pending whatever the Legislature does with the curative bills.