We won’t be providing our detailed thoughts on last week’s U.S. Court of Appeals for the Sixth Circuit’s opinion in Hall v. Meisner, No. 21-1700 (Oct. 13, 2022), because we’re obviously biased: our law firm colleagues Christina Martin and Kady Valois represent the prevailing property owners, so we naturally agree with the court. Thus, you should really read the opinion in its entirety yourself. But we shall offer some commentary:

  • This is another one of those “home equity theft” cases where, after foreclosing property in order to satisfy a tax or other debt, the government doesn’t remit the excess equity to the property owner, but keeps it or allows a private third-party to do so.
  • This case is a takings challenge to a Michigan county doing just that under the authority of state law. Hall owed a tax debt of $22k, and her home was worth close to $300k. The County foreclosed, then transferred Hall’s home to a local municipality which satisfied the tax debt and in turn conveyed the home for $1 to a nonprofit, which then sold it for $308k.
  • The District Court dismissed Hall’s section 1983 takings claim for failure to state a claim. The court concluded that the County had not obtained the “excess equity” in Hall’s home, because it merely foreclosed and then conveyed the home to a separate municipality, which in return conveyed to the County only the amounts of the tax debt. Thus, the County argued, we took nothing.
  • The Sixth Circuit reversed. It framed the issue thusly: “The question, then, is whether Michigan likewise disavowed traditional property interests merely by defining them away in its General Property Tax Act.” Slip op. at 6.
  • The court concluded that the excess equity in one’s home is a private property interest because “Anglo-American legal history” has long-recognized such an interest, and English courts of equity and law considered “irrevocable forfeiture of the debtor’s entire interest in the land” if mortgaged, to be “an intolerably harsh sanction for the borrower’s default.” Slip op. at 7.
  • American courts were similarly “uniformly hostile to strict foreclosure … where the land’s value exceeded the amount of debt.” Slip op. at 9.
  • The court held that the Michigan statute which permitted the County to foreclose without returning the excess equity to the homeowner “contravened all these long-settled principles[.]” Slip op. at 12. The statute was an “ipse dixit” that “sidestepp[ed] the Takings Clause by disavowing traditional property interest long recognized under state law.” Id.
  • The court also rejected the County’s argument that the County wasn’t the party doing the taking, because it only foreclosed, while it was the municipality to which the property was transferred that kept the change. Slip op. at 13.
  • The court similarly rejected the Michigan Attorney General’s argument that the state and local governments would suffer “serious fiscal consequences” if the statute were unconstitutional. The court responded much as we might expect, and gave little stock to this chicken little claim (as most courts do).
  • “In sum, the Takings Clause “is addressed to every sort of interest the citizen may possess.” U.S. v. General Motors Corp., 323 U.S. 373, 378 (1945). The plaintiffs’ equitable title to their homes was such an interest. On the facts alleged here, the County took the plaintiffs’ property without just compensation, in violation of the Takings Clause.” Slip op. at 15.

So there it is. The court looked at whether the interest claimed was a long-standing and traditional property right. It was and is. Thus, although state law may redefine that right, it can only do so if it provides just compensation. If there’s a big-picture takeaway from the opinion, to us it is this:

Where we respectfully disagree with the district court, however, is in its assumption that the question whether the County took the plaintiffs’ property is answered solely by reference to Michigan law. True, the federal “Constitution protects rather than creates property interests,” which means that “the existence of a property interest,” for purposes of whether one was taken, “is determined by reference to existing rules or understandings that stem from an independent source such as state law.” Phillips v. Washington Legal Foundation, 524 U.S. 156, 164 (1998) (quotation marks omitted). But the Takings Clause would be a dead letter if a state could simply exclude from its definition of property any interest that the state wished to take. To the contrary, rather, “a State may not sidestep the Takings Clause by disavowing traditional property interests long recognized under state law.” Id. at 167.

Slip op. at 5 (emphasis added).

For more, check out Christina Martin’s recent guest spot on the Eminent Domain Podcast, and John Stossel’s report, “Stealing Homes.”

Hall v. Meisner, No. 21-1700 (6th Cir. Oct. 13, 2022)