United States: Supreme Court Holds Property Owners Can Recover Surpluses From Tax Sales As Unconstitutional Takings

Tyler v. Hennepin County Supreme Court Holds Property Owners Can Recover Surpluses From Tax Sales As Unconstitutional Takings

The U.S. Supreme Court has ruled in favor of a residential property owner, Geraldine Tyler, in Tyler v. Hennepin County, Minnesota, et al., No. 22-166. The court determined that the county's retention of the surplus after a tax sale was an unconstitutional taking of property without just compensation violating the Fifth Amendment. Hennepin County sold Ms. Tyler's home for $40,000 to satisfy a $15,000 tax bill. However, the county kept the remaining $25,000 instead of returning it. As a result, Ms. Tyler brought an action claiming the county's efforts constituted a taking of property without just compensation in violation of the Fifth Amendment.

The Supreme Court looked at precedent and found a 600-year history in the common law recognizing a property owner's right to receive the surplus above what the state had collected to satisfy the outstanding debt. In addition, the Court reviewed the history of the law in Minnesota and other states to determine that most states and the federal government require the return of surplus funds to the tax debtor. The ruling will have a significant impact on property owners across the country, as it will allow them to recover any surplus from tax sales.

Property owners undergoing tax foreclosure sales should be aware of their right to retain the excess proceeds of the deal after the tax debt has been satisfied. Most U.S. states and the federal government have a mechanism for such a payment or for the owner to claim the funds. In the 14 states where the law does not provide for the repayment of the excess amount, the property owner should consider filing an inverse condemnation action to receive payment. Even if the tax foreclosure has already occurred, a claim may still be viable depending on the applicable statute of limitations.