Model States for Protecting Home Equity

Only a minority of states practice home equity theft. Most states recognize that when the government forecloses on a property due to failure to pay taxes, it can’t take more than it’s owed. Any surplus equity in a tax foreclosure properly belongs to the former owner of the property.

Still, even states that strongly protect property rights sometimes have loopholes or poorly designed procedures that threaten former owners’ equity. While tax foreclosure statutes tend to be complex, constitutional flaws can typically be addressed by relatively minor adjustments to language and procedures. 

Below are two examples of the best state procedures. Wisconsin is a “tax deed” state, in which a county keeps ownership over a lien for delinquent taxes until the property is foreclosed upon and then sold or converted to public use. Florida is a “tax lien” state, in which the government sells the lien to a third party, who then enforces the lien and forecloses when warranted. Both states strongly protect equity.

Conclusion

Tax foreclosure laws are complex, and they vary significantly from state to state. Even so, lawmakers can take simple steps to review and amend statutory procedures to protect property owners’ equity. The Wisconsin and Florida models demonstrate leading options for this protection.