Home Equity Theft is Unconstitutional

The Fifth Amendment to the United States Constitution, enforced against the states under the Fourteenth Amendment, provides that property shall not be taken for public use without just compensation.¹ Similar protections exist in virtually all state constitutions.

The purpose of these protections is to prevent the government “from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.”² Tax-and-take laws violate this maxim by forcing delinquent taxpayers—often among society’s most vulnerable—to bear more than their fair share of the public tax burden.

As the Supreme Court has explained, property rights are not created by the Constitution. Rather, property rights arise from independent sources, including state law³ and common law.⁴ And these rights encompass more than just physical lands and things; even rights in intangible property are included.⁵ When someone owns a home, for example, they also have a right to the home’s equity—the underlying value of the home after accounting for all debts.

In the context of private debt collection, the law has long recognized equity in property as a discrete and valuable interest, requiring its return to the former owner after a property’s foreclosure.⁶ Consistent with that principle, tax collectors have traditionally been—and in most states still are—required to hold a public sale of a property and refund any surplus proceeds from the sale of a tax-delinquent property to the former owner.⁷ The famous jurist Sir William Blackstone wrote that, when officials seize property for delinquent taxes, “they are bound, by an implied contract in law” to sell it and “render back the overplus.”⁸ This principle may trace its roots all the way back to Magna Carta, which limited the king’s right to seize property and prevented him from taking more than necessary to satisfy tax debts.⁹

In the early days of the republic and for at least a hundred years, government officials who took more property than necessary or who failed to refund the surplus proceeds after selling seized property were liable in trespass or conversion or for a taking.¹⁰ It was widely understood that tax collectors could take no more than they were owed.¹¹ So secure was this principle that when Congress passed a statute that appeared to confiscate equity in tax-delinquent property in the newly formed Confederate states, the U.S. Supreme Court repeatedly chose a strained interpretation to avoid such an outcome.¹²

In short, the principle that tax debtors have a right to the equity interest in their property was in force when the Takings Clause was adopted, and it is still in effect throughout most of the U.S. Most states refund the surplus equity to the former owner after selling tax-delinquent property.¹³ Those that fail to abide by this principle violate the Constitution.

¹ U.S. Const. amends. V, XIV; see Cedar Point Nursery v. Hassid, 594 U.S. ____, 141 S. Ct. 2063, 2071 (2021).

² Armstrong v. United States, 364 U.S. 40, 49 (1960).

³ See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1001 (1984) (quoting Webb’s Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155, 161 (1980)); Phillips v. Washington Legal Found., 524 U.S. 156, 164–65 (1998).

⁴ See id., 449 U.S. at 1001–02 (relying on Restatement of Torts and Restatement (2d) of Trusts in determining what interests are protected by the Takings Clause).

⁵ Id. at 1003.

⁶ See, e.g., Restatement (3d) of Property (Mortgages) § 7.4 (1997) (“The surplus stands in the place of the foreclosed real estate, and the liens and interests that previously attached to the real estate now attach to the surplus.”); 72 Am. Jur. 2d State & Local Taxation § 911 (1974) (“Any surplus remaining after the payment of taxes, interest, costs, and penalties must ordinarily be paid over to the landowner.”).

⁷ Rafaeli, 952 N.W.2d at 454–59 (tracing the long and consistent history of this protection); see, e.g., McDuffee v. Collins, 23 So. 45, 46 (Ala. 1898) (tax collectors must follow the “well-known general rule of law” by paying out surplus proceeds in order of priority).

⁸ 2 William Blackstone, Commentaries on the Laws of England 452.

⁹ For example, the 26th Clause stated that the king could take only so much personal property as required to pay the debt of a deceased crown tenant. Prior to Magna Carta, royal officials “were in the habit of seizing everything they could find” from the estate of a decedent taxpayer, “under excuse of securing the interests of their royal master. They attached and sold chattels out of all proportion to the sum actually due. A surplus would often remain in the sheriff’s hands, which he refused to disgorge. Magna Carta sought to make such irregularities impossible[.]” William Sharp McKechnie, Magna Carta: A Commentary on the Great Charter of King John, 322–23 (2d ed. 1914); Vincent R. Johnson, The Ancient Magna Carta and the Modern Rule of Law: 1215 to 2015, 47 St. Mary’s L.J. 1, 8 (2015).

¹⁰ See, e.g., Griffin v. Mixon, 38 Miss. 424, 436–37 (taking); Cone v. Forest, 126 Mass. 97, 101 (1879) (trover); see also Knick v. Twp. of Scott, 139 S. Ct. 2162, 2176 (2019) (“Until the 1870s,” takings claims were typically brought as “common law trespass action[s]”); Thomas M. Cooley, A Treatise on the Law of Taxation 343–44 (1876); Martin v. Snowden, 59 Va. 100, 137 (1868).

¹¹ See, e.g., Martin v. Snowden, 59 Va. 100, 136–38, aff’d sub nom. Bennett, 76 U.S. 326 (discussing how common law, English land tax statutes, and early colonial laws all restricted the ability of government officials to take or keep more property than necessary to satisfy tax debts); Thomas M. Cooley, A Treatise on the Law of Taxation 343 (1876) (noting that a tax debt only authorizes the government to take as much property as the taxes owed; author unaware of any jurisdiction that followed a contrary rule).

¹² Bennett v. Hunter, 76 U.S. 326, 335, 337 (1869) (interpreting “forfeit” to mean that an owner was merely in danger of a tax sale and could still redeem the property because it is “proper” to avoid such a “highly penal” construction where a milder interpretation is possible); United States v. Taylor, 104 U.S. 216, 219, 221–22 (1881) (relying on Bennett and noting that the statute’s purpose was tax collection, not confiscation, in construing the same statute to hold former owners entitled to surplus proceeds from tax-foreclosure sales); United States v. Lawton, 110 U.S. 146, 150 (1884).

¹³ See, e.g., Jenna Fools, Comment, State Theft in Real Property Tax Foreclosure Procedures, 54 Real. Prop. Tr. & Est. L. J. 93, 99–103 & n. 38 (2019) (The majority of states “require the foreclosing government unit to return surplus funds from a property tax foreclosure sale to the previous property owner.”). In addition, several of the highest state courts have recognized the inherent injustice and illegitimacy of tax-and-take schemes. See, e.g., Thomas Tool Servs., Inc. v. Town of Croydon, 761 A.2d 439, 441 (N.H. 2000); Bogie v. Town of Barnet, 270 A.2d 898, 903 (Vt. 1970); Rafaeli, LLC v. Oakland County, 952 N.W.2d 434, 479 (Mich. 2020).

Home Equity Theft Is Unconstitutional