Tyler Decision Points the Way Toward Ending the Practice in Massachusetts
Today’s unanimous decision of the US Supreme Court in Tyler v. Hennepin County, Minnesota—finding that home-equity theft violates the Takings Clause of the Constitution’s Fifth Amendment—confirms what the BBA and many others have been advocating for years: No homeowner should be stripped of all equity in their property over debts of any lesser amount.
This practice—which is also authorized by Massachusetts law and a dozen or so other states, and is also known as “tax-lien foreclosure”—allows a municipality or a subsequent buyer of municipal debt to take full ownership of a property, re-sell it, and then pocket the entire proceeds, regardless of the excess beyond the actual debt. Yet as Chief Justice John Roberts wrote for the Court, “The taxpayer must render unto Caesar what is Caesar’s, but no more.”
“The BBA has testified in support of legislation to eliminate this unjust windfall, and the Tyler ruling will require municipalities to re-examine such abuses,” said BBA President Chinh Pham. “We welcome this outcome, and we call on the Legislature to not only eliminate home-equity theft by both municipalities and third-party debt buyers but also to make other changes to the statutes on municipal debts.”
Specifically, the BBA has recommended:
- Allowing municipalities to adopt repayment plans with more flexibility in repaying back taxes and interest, especially for low-income and elderly individuals who are house-rich but cash-poor.
- Providing for more effective notices to homeowners, including delivery to the local Council on Aging and more understandable language, as well as notices to tenants whose property may be subject to tax foreclosure.
- Eliminating arrest as a possible consequence of tax delinquency.
- Requiring that third parties who purchase tax liens be licensed as debt-collectors.
Other groups that have been working to reform Massachusetts’ laws on tax-lien foreclosure include Greater Boston Legal Services (GBLS) and the National Consumer Law Center. GBLS, along with Morgan Lewis & Bockius and the Pioneer Public Interest Law Center, filed a case this month in federal bankruptcy court challenging the law here, on behalf of a plaintiff whose debt was purchased by a Boston-based tax title buyer.
In Tyler, the 94-year-old plaintiff claimed that the County had unconstitutionally seized her $40,000 property over a $15,000 debt, but the District Court dismissed her case for failure to state a claim, and the Eighth Circuit affirmed. The Supreme Court reversed, sending the case back to the trial court—where Tyler will be entitled to pursue compensation for the $25,000 surplus value that was taken—and holding that while “the County had the power to sell Tyler’s home to recover the unpaid property taxes…it could not use the toehold of the tax debt to confiscate more property than was due.”
The Takings Clause states: “[N]or shall private property be taken for public use, without just compensation.” The plaintiff had argued, in addition, that the law violated the Eighth Amendment’s prohibition on excessive fines, but the decision did not address that issue, though two justices filed a concurring opinion adopting her view.