Tax Lien Foreclosures and Surplus Funds – The Supremes Rule

hennepin-300x169Several prior blog posts discussed the Supreme Court case Tyler v. Hennepin County, Minnesota, which addressed to whether the government could keep surplus funds in tax lien foreclosures.  Geraldine Tyler is a 94 year old woman living in Minnesota who owed $2,300.00 in unpaid property taxes for her condominium.  Due to her age and safety concerns, she moved to a nursing home and the condominium was sold by the county to pay her unpaid property tax bill.

The property was sold by the County at auction for $40,000.00.  Ms. Tyler’s unpaid tax bill was only $15,000.00 once interest and late fees were included.  So what happened to the extra $25,000.00?  Under existing law in Minnesota, Hennepin County (the County in which the condominium was located), kept the excess funds for itself.

Ms. Tyler then sued, claiming that allowing the County to keep the funds in excess of what she owed in taxes was an unconstitutional taking of her property.  The relevant clause is located in the Fifth Amendment of U.S. Constitution and states that “Nor shall private property be taken for public use, without just compensation.”

The Supreme Court just ruled in Ms. Tyler’s favor, in a unanimous (9-0) decision.  It stated that allowing the County to keep the funds recovered in excess of what was actually owed violated this section of the Fifth Amendment.  It cited historical precedent dating back to King John and the Magna Carta in 1215 in support of its decision.

This decision will affect not only Minnesota, but all states which have similar laws, including New York.  In New York State, if your property is sold to pay an overdue tax lien, any funds received from the sale belong to the government, and not to the person whose property was seized, even if the amount owed in delinquent taxes was greatly exceeded by the amount recovered. Under this Supreme Court decision, such law is now unconstitutional, and claimants will now have the right to recover surplus funds in tax lien foreclosures, just as they can in mortgage foreclosure cases.

Our firm looks forward to assisting clients in recovering surplus funds in all foreclosure actions, which, thanks to Ms. Tyler, her attorneys, and the United States Supreme Court, will now also include tax lien foreclosures.

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