Up Before SCOTUS: The Consequences of Not Paying Property Taxes

Elder Law Answers Legal Update.On April 26, 2023, the U.S. Supreme Court heard oral arguments in a case that involves an elderly former homeowner who relocated to a senior community and, after that, did not pay property taxes on her home.

Subsequently, the auditor-treasurer of Hennepin County, Minnesota, foreclosed on the property and sold it for $40,000 to recover approximately $15,000 in unpaid property taxes. Geraldine Tyler contends that her local government engaged in home equity theft by keeping more money than it was owed and not returning surplus funds to her. The case is Geraldine Tyler v. Hennepin Count et al., No. 22-166.

One of the key issues in Ms. Tyler’s case is whether Hennepin County violated the Fifth Amendment to the U.S. Constitution, which prohibits taking private property for public use without just compensation. As outlined in her argument, at least 14 states have laws that permit various government agencies to recover amounts owed to them related to real property by confiscating title to the property and keeping any equity that may have accrued in the property, regardless of the amount of the debt or amount of the equity.

For example, Alabama, Massachusetts, and New York local governments have discretion regarding what is done with surplus funds. Minnesota, Maine, and Oregon may retain any surplus for their own use. Arizona, Colorado, Nebraska, New Jersey, Montana, and Illinois give the entire equity of foreclosed property to private purchasers of tax liens.

Ms. Tyler owed $2,300 in property taxes and approximately $12,700 in interest, penalties, and costs. Hennepin County foreclosed on her home and sold it for $40,000. After repaying itself, it kept the $25,000 remaining and left Ms. Tyler with nothing. Ms. Tyler contends this is a violation of the U.S. Constitution. The Supreme Court is expected to rule on the case by June.

The Tyler case highlights an all-too-common issue many elderly homeowners experience after transitioning from their home to a nursing home, a senior community, or assisted living facility. Many seniors do not sell their real property because they wish to leave it to their heirs. However, this transition can often lead to seniors losing track of their finances and omitting to pay certain obligations such as their property taxes.

The consequences of doing so can be severe. One is the loss of equity in one’s home. Another is the loss of the opportunity to transfer wealth from one generation to the next and minimize capital gains taxes paid by heirs. For many people, their home is their most valuable asset. As people age and depend on a fixed income, many fall behind on their taxes. While this may be a stressful issue for senior homeowners, it should not be ignored, as it can lead to them losing all the equity they have in their homes.

Read more about the Tyler case.