What Tyler v. Hennepin County Means for the Future of Property Tax Foreclosure Systems Across the Country
May 26, 2023
Download our policy brief on Tyler v. Hennepin for more guidance.
There’s nothing fun about tax foreclosure. (Trust us, we wrote a whole report about it.)
But when it comes to paying property taxes, the consequences are clear: Pay up or risk losing the property.
That consequence exists for a reason. Property has intrinsic and monetary value. And property taxes fund basic community services like schools, roads, parks, sidewalks, and public safety—the things that enable families to live and build wealth in vibrant, secure neighborhoods.
Most people understand property taxes are a necessary part of the social contract that shapes and strengthens our communities. Indeed, most local governments report that almost all owners pay their property taxes on time.
The problem is what happens when a property owner can’t—or won’t—pay their fair share and walks away from the property. As the notices, warnings, and fines pile up and the property slides into delinquency and towards tax foreclosure, we ask a very important question: What is the most fair and equitable way to balance the interests of the property owner who has walked away from their obligations, with the interests of the community?
In the case, 94-year-old Geraldine Tyler stopped paying taxes on her condominium after moving to assisted living. Hennepin County, Minnesota repeatedly warned Ms. Tyler that she could lose her property and offered payment plans and resources to assist her. The property also had unresolved liens in the form of mortgage and HOA fees. After more than five years of not paying property taxes (during which she accrued $15,000 in unpaid taxes, interest, and fees) the County foreclosed on and took possession of the property, sold it at auction roughly fifteen months later for $40,000, and retained the excess $25,000 from the sale. The Supreme Court ruled that by allowing the County to keep the surplus from the property sale, Minnesota law violates the “takings clause” of the Fifth Amendment of the U.S. Constitution.
The Court has now made clear that state tax foreclosure processes must provide an opportunity for property owners to recover any “excess value” in their property that might exist beyond the amount of unpaid taxes, interest, fees, and costs at the conclusion of the foreclosure. Minnesota will have to amend its statute to provide that opportunity, which may require it to subject all properties to a public auction at the conclusion of the tax foreclosure or to appraise or otherwise value the property and then include a mechanism to return excess amounts, if any, to the property owner.
At this point, the full implications of the Court’s decision are unclear, given that laws and statutes governing property tax foreclosure systems vary dramatically state by state. We will offer additional perspective and guidance in the coming weeks on how states should reevaluate or modify their property tax foreclosure process.
Is property tax foreclosure reform needed?
Tyler v. Hennepin County made one thing clear: The property tax system needs reform. The system—not just the final foreclosure event—has had deeply, historically inequitable impacts on communities across the country. From determining property value, to assessing and collecting taxes, to enforcing delinquent taxes, the property tax system has intentionally and unintentionally stripped low-income and Black and Brown property owners of generational wealth.
This is the overarching reason we should push for property tax system (including foreclosure) reform, and this type of reform must be focused on more than just changes to accommodate the limited remedy the Court granted Ms. Tyler.
In our decade of work to help local governments and advocates address widespread vacant and abandoned properties, we’ve seen the impact of property tax foreclosure across the country. The neighborhoods with the greatest concentration of tax foreclosed properties are most often those with the greatest concentration of vacant—what some call “blighted”—properties. These neighborhoods also tend to be home to majority Black and Brown residents. These communities desperately need tools that can help repair decades of racist policies and disinvestment. Unfortunately, most tax systems are designed in a way that causes incredible harm to neighborhoods, especially Black and Brown neighborhoods experiencing concentrated poverty.
This is why Community Progress is passionate about helping to design and implement more equitable policies, practices, and programs in transforming vacant properties to assets that advance equitable development, inclusive neighborhoods, and community resiliency.
It’s why we are a staunch advocate of a more fair and equitable property tax system—from assessments to the disposition of foreclosed properties.
At the same time, we advocate for helping communities reform and use delinquent property tax enforcement systems to address systemic vacancy. Tax delinquency is the biggest indicator of property abandonment, and the delinquent property tax enforcement process is the most powerful tool a government has to address abandoned properties harming their neighbors and broader community.
Put another way, property tax systems need bold and substantive reform to ensure property owners have every conceivable opportunity avoid tax delinquency in the first place. For those properties that become vacant and do fall into tax delinquency, it is critical to reform and leverage the tax foreclosure process to responsibly steward those harmful properties to a new, responsible owner in support of community priorities.
How should states pursue property tax system reform post-Tyler v. Hennepin County?
The Supreme Court did not go as far in upending the practice of property tax foreclosure as many feared it could have. Most states already have in place some mechanism to determine the amount of “excess value” in a property facing tax foreclosure—such as a public auction at the end of the foreclosure—and to return that amount, if any exists, to property owners.
Those states that do not have such a mechanism (approximately 8-12 states, based on the plaintiff’s prior pleadings and our experience) will need to assess what type of reform they need to make to conform to the Tyler decision based on their statutes.
But here’s the thing: The changes required in these states may introduce some fairness in the final stage of foreclosure, but on their own will not address the most inequitable elements of the property tax system. In those states, this decision will impact key tools that counties, cities, and land banks use to address vacant and abandoned properties.
Across the country, rural, urban, and suburban communities face daunting levels of vacant and abandoned properties that significantly harm residents’ safety, quality of life, and ability to build wealth. Whether that’s former steel mill or coal mining towns in Allegheny County, Pennsylvania or Huntington, West Virginia; inner core neighborhoods of Memphis, Tennessee or High Point, North Carolina; or predominantly Black neighborhoods in segregated cities like Louisville, Kentucky, St. Louis, Missouri, or, indeed, Minneapolis, Minnesota.
The Tyler v. Hennepin County decision will limit some of the innovative tools communities use to address these harmful vacant properties. For example, many communities—like those in New York, Ohio, and Michigan—have “right of first refusal” tools that allow local governments or land banks to acquire vacant, tax-delinquent properties in advance of a sale or public auction. This authority provides taxpayers an opportunity to steer that property toward a more equitable, sustainable outcome aligned with community priorities. Some of these communities have used this approach to produce more affordable housing, prioritize community ownership, expand wealth-building opportunities, and even promote food security and resiliency by creative reuse of vacant land.
We encourage our partners across all states to use the Court’s decision to examine their property tax systems, make these systems fairer and more equitable, and preserve and create tools within those systems to address vacant and abandoned properties.
How can states make property tax systems more fair and equitable?
Allowing a property owner to recover what little value is left in their property after the owner has already lost their property, like what happened in Tyler v. Hennepin County, is like closing the barn door after the horses have already escaped.
The best place to make the property tax system fairer and more equitable is to focus on upstream measures that keep people out of tax delinquency in the first place. For example, states and local governments could:
- Reevaluate property tax assessments to ensure they are fair, accurate and sensitive to market realities and historical context, and offer an accessible path for owners to contest their assessment or tax bill. For example, the ACLU successfully advocated for correcting overtaxation of property owners in Detroit which disproportionately harmed Black homeowners.
- Provide the most vulnerable, lower-income owners—especially the elderly—with a range of tax breaks, exemptions, payment plan options, and other “circuit breakers” to ensure everything is being done to prevent these owners from becoming delinquent. The AARP’s critical work to ensure senior homeowners receive property tax exemptions, protecting housing security for our elder homeowners on tight monthly budgets is an excellent example of this.
- Create funding mechanisms in the form of grants or low-interest loans to help owners experiencing financial hardship pay their taxes or make critical repairs to a property.
- Address other aspects that touch property acquisition and disposition, like eliminating predatory loans that targeted Black populations and left them more vulnerable to foreclosures; eliminating the sale of tax liens that allows private investors to prey on homeowners without regulation or oversight; and providing free estate planning services to income-eligible homeowners to ensure a property can be passed cleanly to heirs, protecting generational wealth.
By incorporating equity into the tax system from beginning to end, states make it far more likely that the only properties that slide into tax delinquency and foreclosure are those that are either abandoned or owned by irresponsible, speculative parties. Then, the tax foreclosure process becomes the most important legal system available to local governments to protect the health, safety, well-being, and equity of those who have to live next door to an abandoned property.
Now that we have a ruling in Tyler v. Hennepin County, we can begin to move forward. This case gives states an opening to redesign delinquent property tax enforcement for the good of all.
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