Tyler v. Hennepin County et al.,
U.S. Supreme Court, No. 22-166
Defending a Homeowner’s Right to the Equity in her Home When Government Pays Itself by Selling her Condominium for Taxes
This case deals with the same property rights question as does Nieveen v. TAX 106, a case appearing elsewhere on our docket. Instead of accepting Nieveen, however, the Court accepted the present case for decision on their question common. In short, if government seizes and sells your home to collect overdue taxes, do you have a right to any surplus sale proceeds, or if government disposes of the property in a way that does not realize the surplus proceeds, do you have a right to be paid for the equity you lost?
Such situations arise in many circumstances, but disproportionately among the elderly and infirm. Here the petitioner is a 94 year old woman, who simply forgot to pay taxes on a small condo after she moved to a senior living facility. Her final tax bill was $15,000; the county sold her house for $40,000, paid itself the taxes, and then kept her $25,000 of equity. In her petition she claims that the county’s action is a taking under the Takings Clause of the Fifth Amendment and a penalty or excessive fine under the Eighth Amendment.
NELF has filed an amicus brief in support of her right to the equity. In its brief NELF focuses on the underlying issue: whether the difference between what is owed and what the property would be worth less the debt, i.e., the equity, was recognized as the debtor’s property at the time those constitutional protections were put in place. Using 17th and 18th century English legal sources dealing with land as security for debt, NELF discusses the body of law lying at the intersection of real property and money debts, the law of mortgages.
NELF recounts that if a debtor made the slightest default on a debt secured by a common law mortgage, the land was forfeited completely to the creditor mortgagee, no matter how valuable the land and how much smaller the value of the debt might be. This harsh result befell the hapless debtor because a common law mortgage gave actual fee simple title to the creditor, subject to full, timely repayment of the debt. English courts of equity, with their traditional abhorrence of forfeitures and of anything smacking of a penalty, were ideally suited to mitigate the harshness of the common law and increasingly intervened to protect the debtor.
The equity courts first expanded the circumstances under which a mortgagor was permitted to pay late without forfeit. This right was known as the equity of redemption, and by early in the reign of Charles I it had become a definite right of the mortgagor. Equity courts increasingly looked past the conveyance of fee simple to the mortgagee and understood the relationship as intended to be a simple debtor/creditor one, not a grantor/grantee one, with creditor being entitled to no more than the fixed sum of the debt. They therefore treated the mortgagee as holding his fee merely as security for repayment, while the mortgagor continued to be the real owner through the equity of redemption. From this view of things the courts deduced that once the mortgagee creditor’s monetary claim was paid off, the security interest dissolved and any remaining interests in the pledged property belonged to the mortgagor debtor. Those interests had to be preserved and restored to the debtor if they were in the custody of the mortgagee. The courts even called the creditor a “trustee” for the return of debtor’s remaining property.
By the early 18th century, the equity courts were treating the equity of redemption not only as a right, but also as a form of property, one that could be bought, sold, and even mortgaged on its own, separate from the limited security interest held by mortgagee. The culmination of this trend was Lord Hardwicke’s judicial declaration in 1738 that “as to the nature of the interest—An equity of redemption is considered as an estate in the land; it will descend, may be granted, devised, [and] entailed.” Hence, at the time of the War of Independence, it was a background principle of Anglo-American law that the equity of redemption, or as we would now simply call it “the equity,” was property of the debtor.
NELF concludes by urging the Supreme Court to affirm that ownership of equity is a property right that must be protected constitutionally when government pays itself out of the value of the taxpayer’s home.