Ending Home Equity Theft in Courts and Statehouses

Home equity theft is unconstitutional and wrong, which means that it can be ended either through legislative means or in the courts. A decision in the Supreme Court of the United States finding it unconstitutional for government to confiscate more than a debtor owes would end home equity theft once and for all. Short of that, a patchwork of lower-court judgments and legislative solutions could end home equity theft in the remaining states that still wrongfully authorize it. 

For example, the Michigan Supreme Court recently held in Rafaeli, LLC v. Oakland County that a Michigan county violated the state constitution when it took more property than necessary to collect delinquent taxes, penalties, interest, and fees. In that case, a homeowner mistakenly failed to pay $8.41 in property taxes.1 Oakland County nevertheless foreclosed on the home and sold it at auction for $24,500. Rather than just keep what it was owed in taxes, penalties, interest, and fees—$285—the county kept all the profits, pursuant to Michigan’s tax statute.

The Michigan Supreme Court held that by keeping more than it was owed, the county violated the state constitution’s requirement that it pay just compensation when it takes private property for a public use. Similarly, several other state supreme courts, including those of New Hampshire, Vermont, Virginia, and Mississippi, have found a taking or other constitutional violation when government took more than it was owed.2

Wisconsin and North Dakota recently ended their state’s tax-and-take scheme legislatively, requiring all foreclosed property to be sold to the highest bidder, the debts to be collected, and any surplus profits to be returned to the former owners.3 In Montana, the legislature overwhelmingly enacted bipartisan legislation ending most home equity theft in the state.4


Reform Guidelines:

Property tax foreclosure is a complex issue with several factors that make a model policy impractical. The reform principles, however, are simple, aiming for a fair process to make every party whole. Below are principles all tax foreclosure laws should embody.