'Vassal' homeowners? Justices skeptical of states keeping full proceeds of seizures for back taxes

A Georgetown University law professor who wrote a book arguing for then-President Trump's impeachment believes that states can legally confiscate a million-dollar home and keep the full sale proceeds to pay $5 in back taxes. Some members of the Supreme Court found that a stretch.

Justices across the ideological spectrum gave Neal Katyal, solicitor general in the Obama administration, a hard time in oral arguments Wednesday in a case with far-reaching consequences for property rights in America, perhaps as consequential as its 2005 Kelo decision that set off a wave of eminent-domain reform across the country.

Minnesota's Hennepin County, represented by Katyal, seized 94-year-old Geraldine Tyler's condo as payment for $2,300 in back property taxes and $13,000 in penalties, interest, and costs, then sold it for $40,000 and kept the profit as allowed by law in Minnesota and a dozen other states including D.C. Others return the surplus from the sale to the owner.

Tyler had moved out of the Minneapolis condo, valued at $93,000, for a safer neighborhood but struggled to pay both rent and property taxes, according to a profile in Reason, which said the laws tend to hit elderly homeowners without mortgages. 

Other states have reaped even bigger windfalls from what critics call "home equity theft": $197,000 kept by D.C. for $134 owed and $286,000 kept by Michigan to pay an initial $900 tax bill, though a federal appeals court struck down Michigan's statute.

Justice Neil Gorsuch twice brought up the hypothetical $5 tax bill on the million-dollar home, but Katyal said the threat of seizure would be a "reasonable condition" on property ownership. Justice Elena Kagan questioned the limits of that argument, noting that Tyler had no way to get the surplus sale funds back, unlike a similar scheme the high court upheld in New York that had a 20-day request period.

Gorsuch was amazed that Katyal invoked the Statute of Gloucester of 1278, which involves lands owned by feudal lords, when the Magna Carta of 1215, the basis for the 5th Amendment's takings clause, arguably prohibits Hennepin County's practice. "Tyler was not a vassal owing fealty to her lord," Gorsuch said, reading from Tyler's reply brief and prompting laughter from the audience. 

Katyal heavily relied on America's history before the ratification of the Constitution. Virginia and Kentucky had statutes letting jurisdictions take "absolute title" of property to pay a smaller debt.

Justice Amy Coney Barrett challenged his argument when she asked if cities could similarly impound cars for unpaid tickets, sell them and keep the proceeds. Katyal said that would not be reasonable because it had no tradition. "There weren't cars" when the Constitution was ratified, Barrett deadpanned, prompting more laughter.

Even if they are sympathetic to the nonagenarian, justices voiced concern that states might find semantic workarounds to a ruling that deems the "windfall" practice a violation of the takings clause, which requires "just compensation."

"What if a state just called this a penalty scheme?" Justice Elena Kagan asked Tyler's attorney Christina Marie Martin of the Pacific Legal Foundation, floating a hypothetical statute that puts owners on notice they'll forfeit 50% of their equity for back property taxes.

"What is really the point of your winning?" Barrett asked Martin, noting that Hennepin County's brief blurs the line between forfeiture and abandonment and Tyler hadn't lived in the condo for five years when it was seized. Justice Sonia Sotomayor also brought up abandonment as a problem for Martin's argument.

That requires "intent to relinquish," a factual question at trial, Martin responded. Even if Minnesota had such an abandonment law it would still be problematic because people vacate their homes or fail to pay taxes for many reasons, such as moving into nursing homes, she said.

Katyal picked up on Sotomayor's warning against "throwing a bomb" on tax-collection practices across the country.

Overturning Minnesota's law would make many states "real estate agents of last resort" who are "stuck holding the bag" when delinquent owners don't take the initiative to sell their own property to pay debts, the former solicitor general said. "This is no money maker for the government."

Kagan objected that states could never try to pull this scheme with cash, but Katyal said the real property seizures follow a "different historical tradition" than the rules for seizing bank accounts.

Chief Justice John Roberts told Katyal he was exactly backward in claiming that the state has greater authority over real property because it is the ultimate source for wealth creation. Land ownership is "essential to the preservation of liberty," but money is subject to inflation, Roberts said.

The high court spent less time on Tyler's claim that taking property in excess of a tax debt implicated the 8th Amendment's prohibition on excessive fines.

The U.S. split the difference between the parties, supporting Tyler's 5th Amendment claim but opposing the 8th Amendment claim. Minnesota's law looks "punitive" at least in part, especially because the state doesn't try to take greater amounts than owed for other debts such as child support, Gorsuch told Assistant to the Solicitor General Erica Ross.

She responded that the law is not punitive because it has no relationship to culpability and could provide a net benefit to the taxpayer. Incarcerating a homeless person could also benefit that person, but it's still punitive, Justice Ketanji Brown Jackson retorted.