Property rights suddenly got big for the current Supreme Court term, as on Friday the Court accepted a case challenging “equity theft” in property tax forfeitures. Equity theft broadly means where (1) governments foreclose on properties because their owners haven’t paid their taxes, (2) the property is sold (often at auction) to pay the taxes, (3) and then—even after deducting for penalties, interest, attorneys fees, etc.—the government keeps the excess of the sale, i.e., the remaining equity. The details of the practice vary throughout the country, but it’s legal in at least 11 states.
Several Midwest states are particularly bad. This has resulted in a number of appellate rulings on the issue in recent years, including the Michigan Supreme Court, Eighth Circuit, and Sixth Circuit. The Pacific Legal Foundation has represented several property owners on the issue and has some great resources if you’d like to learn more. We have discussed the issue a few times—including about some PLF cases—on the Short Circuit podcast. So it’s only fitting that PLF represents the property owner in the case before the Court, Tyler v. Hennepin County. In the case, Hennepin County, Minnesota foreclosed on and sold the condo of Geraldine Tyler, a 93-year-old woman, for $40,000 to pay approximately $15,000 in taxes and fees. Pursuant to state law, it then kept the extra $25,000. The questions in the case are is that a taking and/or is it an excessive fine?
There will be plenty of talk in the coming months about Tyler, the wider problem, and takings and excessive fines law. What I want to exceedingly briefly touch on here is a state constitutional angle in the background. And that’s a quirk about what the Minnesota Constitution says property is.
The Supreme Court has said many times that the Constitution itself protects property but it doesn’t define property. That is, the Constitution doesn’t dictate the ins-and-outs of estate law, who has a primary claim to minerals under someone’s land, or who owns a hunted fox. But that doesn’t mean a state’s government can do whatever it wants to property law. For example, the state legislature couldn’t pass a law saying that everyone’s house is actually owned by the governor, make the ownership rights retroactive to the beginning of time, and not pay any compensation. That would be unconstitutional in quite a few ways. But, the state’s common law courts can over time recognize changes in property law that can affect who owns what. For example, it can recognize gradual changes in estate law making a case turn out differently than it would have 200 years ago in a way that changes who inherits what in the matter before it. That might be a rather minor example, but it is a case of the rules of property changing over time in a way that doesn’t violate the Constitution. It’s just the common law process of the evolution of legal rules.
Where is the “constitutional line” between these two examples? That’s something the Supreme Court has never answered to much of an extent. As far as this case, it seems to me that Geraldine Tyler’s story is way way closer to the governor-house-theft example than the gradual estate law change example. The primary argument of the defendant, Hennepin County, is that state statutes allow for this tax forfeiture system, and they were in place before Ms. Tyler acquired the condo. Thus, it’s just the run-of-the-mill property law of Minnesota that she didn’t own the excess equity. There’s no “equity theft.” Or, as more cynical observers might put it, in this case property is theft.
But here’s another twist on the situation. I don’t know if this issue came up in the case below (I doubt it), but it’s interesting to think about. The Minnesota Constitution (adopted in 1857) says its land is “allodial.” Article I, Section 15 states “All lands within the state are allodial and feudal tenures of every description with all their incidents are prohibited.” It’s one of only three states with an “allodial lands” provision. The others are Arkansas and Wisconsin.
What does “allodial” mean? Black’s Law Dictionary defines it as “Free; not holden of any lord or superior; owned without obligation of vassalage or fealty; the opposite of feudal.” Now, feudal lords—even in Minnesota—are pretty few and far between these days. So in that narrow sense the provision is rather like the Third Amendment. But a broader reading would be that people own property without subservience of their title to the government. This is something that bedevils many Native Americans who “own” land on reservations. The federal government holds the land “in trust” and the owners need special permission from the feds before they can do most things that other property owners take for granted, such as get a mortgage. A system like this in Minnesota (or Arkansas or Wisconsin) would seem to fly in the face of allodial ownership. The state legislature defining away land ownership—and the equity in that ownership—when the government is making due on taxes seems to fly in allodial’s face as well.
The Minnesota Supreme Court has not said much about the Allodial Lands Clause, and most of that was in the nineteenth century. But it did indicate it means something. The issues before the U.S. Supreme Court in Tyler likely won’t get too into the weeds of state property law, let alone what the state constitution says. However, I do think it is relevant. If the legislature violated its own state constitution in setting up its tax forfeiture scheme, then “state law” might not allow for equity theft. In a normal case at the U.S. Supreme Court the statutes would simply be what “state law” is which the Court has to take as given. But here—for the reasons I give above—that “state law” might not be the entire definition of what “property” is, so the state constitution—even a provision of the state constitution not fully fleshed out in the state courts—could be relevant as well.
Anthony Sanders is the Director of the Center for Judicial Engagement at the Institute for Justice.