Illinois and other states which allow county governments to keep the money after seizing and selling homes to satisfy unpaid property taxes, will need to rewrite their laws to come into compliance with the Supreme Court’s ruling that such practices violate the U.S. Constitution, say the lawyers from the Pacific Legal Foundation, the public interest advocacy organization that won the ruling.
But even if the state changes the law immediately, local governments in Illinois could also face the risk of lawsuits from former homeowners and others demanding refunds for the money pocketed from past tax sales, say those Pacific Legal Foundation attorneys.
David Deerson
| Pacific Legal Foundation
The case centered on a challenge brought by 94-year-old Black homeowner Geraldine Tyler, of Hennepin County, Minnesota, near Minneapolis. Tyler had owned a one-bedroom condominium, but lost possession of it when she fell behind on property taxes, after moving to a senior living apartment.
According to court documents, she owed $2,300 in unpaid taxes, plus $12,700 in penalties, interests and costs.
According to court documents, Hennepin County seized Tyler’s condo and sold it for $40,000, while keeping all the proceeds from the sale. According to the PLF, this meant the county amassed a $25,000 profit from a process dubbed by critics as “home equity theft.”
In Illinois, such “equity theft” has been a longstanding practice for counties tasked with collecting property taxes to fund cities, public schools, park districts, highway departments, townships, counties and dozens of other local forms of government and taxing districts.
Under the Illinois process, taxpayers who fall behind on their taxes risk losing their homes. First, the tax debt is sold by the county, typically to a real estate investor seeking profit from either the sale or retention of the property.
The law has given homeowners a limited period of time in which to redeem the property by paying off the lien. However, that redemption process is complicated by the addition of quickly elevating interest and fees. Ultimately, the investor and the county can opt to seize the property, evict the residents and sell the property for full market value, potentially reaping massive profits.
Critics in Illinois have noted this process has typically victimized those least able to absorb the blow, including the elderly and Black and other racial minority homeowners living in low income communities.
Cook County Clerk Maria Pappas, for instance, issued two reports in recent years, finding the majority of the buyers at the tax sales are large investors and hedge funds. And the majority of those losing their homes in tax sales have come from predominantly Black and Latino communities in Chicago and south suburban Cook County.
In an effort to address some of the problems, the Illinois General Assembly enacted legislation this spring, spearheaded by Pappas, cutting interest rates that can be charged on delinquent taxes and closing loopholes Pappas and other critics said have allowed tax buyers to unload the property while keeping the proceeds from sales, costing local governments millions of dollars while leaving behind vacant properties.
However, it is unclear what the changes promised by the legislation may mean under the recent Supreme Court ruling in Tyler v Hennepin County.
In that decision, the high court ruled 9-0 that such tax sales, in which a home is sold and the county and its investors keep tens or even hundreds of thousands of dollars from the sale, over and above the amount owed in back taxes, amounts to an unconstitutional taking of private property under the Fifth Amendment.
“A taxpayer who loses her $40,000 house to the State to fulfill a $15,000 tax debt has made a far greater contribution to the public fisc than she owed,” wrote Chief Justice John Roberts in the decision.
“The taxpayer must render unto Caesar what is Caesar’s, but no more.”
Other justices said such processes may also amount to violations of the Constitution’s prohibition on “excessive fines,” as expressed in the Eighth Amendment, which blocks governments from demanding fines disproportionate to the offense.
Justice Neil Gorsuch, writing in a special concurrence with Justice Ketanji Brown Jackson, added:
“Economic penalties imposed to deter willful noncompliance with the law are fines by any other name. And the Constitution has something to say about them: They cannot be excessive.”
Following the ruling, PLF attorneys say they intend to switch gears. For years, they have worked for years on first raising awareness of the problems with such “equity theft” processes, and then leading legal challenges to the laws that enabled them.
Now, they say, they will raise awareness in state legislatures concerning the Supreme Court’s ruling in Tyler, as they warn states like Illinois to change their laws to come into compliance with the Constitution and the court’s mandate.
In response to questions from The Cook County Record, PLF attorney David Deerson, who was on the legal team that won the Tyler case, said it is unlikely state governments, like Illinois’, may directly be subject to lawsuits, even if they refuse to change the law in response to the Supreme Court’s decision.
However, Deerson said county governments in Illinois, including Cook County, could be on the hook for lawsuits, if they decide to ignore the court’s ruling, for instance, by asserting their reforms are sufficient to satisfy the constitutional concerns.
Deerson further said counties could also face lawsuits from certain homeowners who may have recently lost their homes at tax sales. Like Tyler in Minnesota, they may opt to sue to see if they can persuade courts to order the counties or others involved in the tax sales to pay them back for the equity they lost during the tax sale.
“Depending on the statute of limitations in a given state, homeowners with lost equity have a cause of action to recover it in court,” Deerson said.
It is unclear at this point if other advocacy agencies or other law groups may seek to join PLF in pursuing such litigation.
At the Supreme Court, PLF was supported by a number of other advocacy organizations, including the Liberty Justice Center in Chicago. In an amicus brief, or friend-of-the-court brief, filed at the Supreme Court, the LJC argued the “equity theft” practices at issue in the Tyler case and elsewhere in Illinois and other states amounted to violations of the Eighth Amendment.
In a release following the ruling, Liberty Justice Center Senior Counsel Buck Dougherty hailed the decision, saying: “The Supreme Court’s opinion today restores common sense principles in favor of taxpayers like Ms. Tyler. Hennepin County illegally took Ms. Tyler’s equity in her condominium without just compensation, and that is never right."
The LJC, however, did not respond to further questions from The Cook County Record, including questions concerning whether the LJC may seek to represent clients suing county governments on grounds similar to those pressed by Tyler against her county.
For its part, the PLF intends primarily to focus on legislation, rather than litigation, at this point, Deerson said.
“We are shifting our focus to legislative reform, but litigation remains an important tool if necessary,” Deerson said. “We also have ongoing cases which we will continue to litigate.”