Here's a follow up to the issue resolved by the Supreme Court in Tyler v. Hennepin County. Recall that in that case, the core question was whether state law exclusively defined the "property" which Ms. Tyler claimed - the monies remaining after the foreclosure and sale of her home to satisfy her outstanding property tax obligation. The Supreme Court unanimously held no, that a state's law of property is "one important source," but "cannot be the only source" of what constitutes private property for purposes of the U.S. Constitution.
In Freed v. Thomas, No. 21-1248 (Sep. 6, 2023), the U.S. Court of Appeals followed up on that question. The court addressed the measure of just compensation in these home equity takings. To do so, the court focused on what "property" was taken - was it the home, or was it the excess proceeds after foreclosure and sale?
The (former) homeowner prevailed on his takings claim after the county seized his home and sold it at auction to satisfy a $1,100 property tax debt, and then kept the excess. The owner asserted the fair market value of the home was $98,800, and not the $42,000 the county received when it sold the house at public auction. He argued he was entitled as just compensation to the difference between the fair market value of the home, minus the amounts he owed in back taxes, interest, and penalties. Meaning that if the owner was correct, the county owed him $56,800 more than the $40,900 the county asserted. The district court rejected the owner's argument, concluding that just compensation is "the amount of the difference between the foreclosure sale and [his] debt." Slip op. at 3.
The Sixth Circuit agreed. The main issue was what "property" was "taken," although the opinion does not clearly set this out. Check out page 4 and over onto page 5 for the court's brief analysis. The court noted that the "Freed is entitled to the amount of the sale above his debt and no more." Slip op. at 4-5.
Here, the district court held at the motion for summary judgment stage that Freed’s Fifth Amendment rights were violated, and it held that Freed was owed the difference between the foreclosure sale amount and his debt, plus interest. This holding squares with Tyler. Freed asserts though that he is entitled to an additional $56,800 because the purported fair market value of the property was $98,800 and the property sold for only $42,000. However, neither this court nor the Supreme Court has ever held that a plaintiff whose property is foreclosed and sold at a public auction for failure to pay taxes is entitled to recoup the fair market value of the property.
Slip op. at 4.
That is only correct if the "property" here was not the home itself, but the excess proceeds from the sale. That squares with Tyler, where the homeowner asserted that the unconstitutional action was Hennepin County keeping the excess proceeds (the property), and not forcing a sale and selling the property at auction (an action that Ms. Tyler conceded was ok).
Similarly here, the property was not Freed's home and the unconstitutional action was not seizing it and selling it to satisfy his tax debt. Rather, the unconstitutional action was the county retaining the excess monies after the (otherwise valid) foreclosure and sale. Thus, the "property" is the money, not the home.
Which goes to show you that how you define the "property" allegedly being taken is critical.
Freed v. Thomas, No. 21-1248 (6th Cir. Sep. 6, 2023)