The US Supreme Court Threw Homeowners A Lifeline. Will NJ Legislators Pull It Back?

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United States Supreme Court, Washington D.C.

The US Supreme Court has been involved in several high profile and controversial decisions as of late. To avoid the risk of turning this article into a political rant however, we’re going to focus on a recent landmark decision that not only wasn’t controversial but instead unanimous in that every US Supreme Court judge voted in favor of it.

The case was Tyler versus Hennepin County and the date was one year ago today on May 25, 2023. It was on this day that all nine Supreme Court justices agreed that the 23 states who practiced ‘equity theft’ at the time of the ruling, violated the fifth amendment of the US Constitution. In other words, it is now illegal for governments and private tax lien holders to confiscate more than what is owed to satisfy the property’s tax debt.

Thus, If you owe $20,000 in property tax debt (for example), the government or the tax lien holders they sell the debt to, are no longer allowed to take more than that amount.  Like a delinquent mortgage, If you’re not able to pay the $20,000, then the lien holder has a right to auction your home for the debt but must return any excess proceeds from the sale.

This is important because as you’ll read about shortly, prior to the ‘Tyler decision’, some owners were losing hundreds of thousands of dollars in equity over tax bills that, in many of the cases that we came across, didn’t surpass $40,000. Can you imagine losing your $400,000 free and clear home to back taxes amounting to no more than a 1/10 of that value?

But first, let me make a quick disclaimer to let you know that I am not an attorney therefore this is not a legal analysis of the Tyler decision. Instead what I’ll attempt to do is use my 24 years of experience working in the tax foreclosure space to give a layman’s opinion as to what this case has meant to homeowners across the country, particularly in New jersey. If you’re currently in tax foreclosure and residing in one of several states still allegedly practicing ‘equity theft’, you are urged to consult a real estate attorney experienced in this niche to see how you can use the Tyler decision to protect your equity, the amount of money left over after the taxes are paid.

Background

Geraldine Tyler purchased a condominium in Hennepin County, MN in 1999. In 2010 she had some sort of frightening altercation with a neighbor and decided to move out of the condo. For several years she failed to pay taxes on it and in 2015 the county of Hennepin foreclosed on her property.  The initial amount owed on the tax lien was a little bit over $2,000. By the time the county foreclosed however, the interest and penalties along with the debt had ballooned to $15,000.

Hennepin County turned around and sold the property for $40,000 and kept the excess $25,000 pursuant to Minnesota state law. In 2019, Ms. Tyler sued the county in District Court claiming that the refusal of Hennepin to return the excess proceeds to her (the $15,000) violated the Takings clause of the fifth amendment. The district court disagreed and Ms. Tyler lost her case. She then appealed to the US court of appeals for the 8th circuit and again lost her case.

In 2022, lawyers from the Pacific Legal Foundation joined with Ms. Tyler’s attorneys and argued her case before the United States Supreme Court. On May 25th, 2023 – exactly 3 years after the death of George Floyd in that same county – the courts voted unanimously in favor of Ms. Tyler.  with Chief Justice Roberts delivering the opinion of the Court. Chief Roberts argued that the belief and practice that government should never confiscate more than what it is owed from its taxpayers goes all the way back to the Magna Carta of 1215. Hence no government should penalize a citizen in an amount that exceeds what is owed.   “The taxpayer must render unto Caesar what is Caesar’s, but no more” stated Chief Roberts in the unanimous decision.

As a result of the US Supreme Court’s decision and subsequent lawsuits, the state of Minnesota recently agreed to settle the case for $109 million covering 6,000 affected properties.

So what does this mean for New Jersey Residents in Tax Foreclosure?

Prior to the Tyler decision, our team had witnessed what is now considered by many to be ‘home equity theft’.  We literally watched dozens of homeowners lose hundreds of thousands of dollars in equity behind a $45,000 tax debt or less.

In one case, an elderly woman almost lost roughly $600,000 over a $1,500 water bill. Fortunately, we intervened and helped her and her son take action to pay it off before they lost the house. Other homeowners in similar situations weren’t so fortunate.

For example, a woman in Orange, NJ recently lost her childhood home and equity to a tax foreclosure. Using Zillow to determine the estimated value of her home, we estimate that she lost at least $425,000 in equity. All behind a $45,000 tax debt.

Another woman and her Autistic adult daughter lost their home in Middlesex county over $32,500 in taxes. The Mother and daughter were subsequently evicted months later and the home resold for $362,000. The mother and daughter received none of the surplus equity.

After the Tyler decision however, the 22 states who held this egregious practice of keeping homeowners equity, including New Jersey, Michigan and New York suddenly began scrambling to change their laws and procedures to comply with the ‘Tyler decision’.

In New Jersey that meant initially requiring individual judges, and not the state’s Office of foreclosure, to review all tax foreclosures to see if they complied with Tyler. For those cases that didn’t, a majority of them at the time, had to start their tax foreclosure over.  However, this time the plaintiffs (tax lien holders) were required to notify the homeowner that due to Tyler, the homeowner was entitled to their surplus funds if they filed a request with the Court.

This effectively granted homeowners more time and options as judges methodically reviewed tax foreclosure cases to ensure compliance. The new requirements also extinguished the chance of the tax lien holder taking Mr and Mrs Homeowner’s equity although the home itself might still be lost at public auction.

However, if the homeowner fails to exert that right to that surplus equity anytime during the tax foreclosure, a process that typically takes 6 months – 1 year to complete, the tax lien holder gets to keep it along with the home when the foreclosure reaches completion.

This is contrary to New Jersey mortgage foreclosures where property owners have up to 10 years to claim their surplus equity after the home is lost to foreclosure.

Understandably, the “you-snooze-you-lose” requirement and deadline still don’t sit right with the Pacific Legal Foundation (PLF), the organization of Attorneys naming it such and that represented Ms. Tyler before the US Supreme Court.

Regarding Michigans’s revised tax sale law, in his article, These states are trying to bring back home equity theft, Attorney Jim Manley refers to these requirements as ‘Demand policies’ and writes:

We know “demand” policies that require property owners to ask for what is rightfully theirs deprive property owners of surplus equity.  After PLF sued on behalf of a homeowner who lost his entire home because he accidentally underpaid his taxes by a mere $8.41, the Michigan Supreme Court declared that the taking violated the state’s Constitution. Reforms were enacted, but the law now requires homeowners to file special forms during a narrow time period to claim the surplus equity from a tax foreclosure sale—or they lose everything to the government. And lose they have.”

Manley cites PLF’s research findings, which looked at 98 foreclosed properties in Oakland County, Michigan. The team found that only one in eight foreclosed property owners successfully claimed their surplus funds. The rest of the money was lost to the government.

Likewise, in New Jersey, the owner’s equity still isn’t being returned across the board.  Hence, as of this writing, our team is still fighting alongside homeowners to save both their equity and their home.

Just last month, we successfully assisted an elderly homeowner living in Bergen county, which sits amongst the counties with the highest property taxes in the country, from losing both his home and equity. He stood to lose over $600,000 in equity over a $40,000 property tax debt. We were able to work with his attorney, who had no idea about the tax foreclosure and was inexperienced in defending against it, to buy more time so that his client could obtain a reverse mortgage.

Additionally, two weeks ago, we enlisted the help of Bergen County Senior Services, to assist yet another elderly Bergen county resident from losing his $667,000 home behind another $40,000 property tax lien. We’re still fighting that battle and hope to be able to report back on a victory at a later date.

In the meantime, our company continues to stand ready to work with attorneys, governments and nonprofits in notifying property owners of their rights.  We urge property owners to consult a knowledgeable and experienced attorney, either in our network or their own, on how the Tyler decision can be used to recover their equity should they not be able to save their home from foreclosure.

If you would like us to put you in contact with a low cost or free attorney to assist you with your tax or other foreclosure issues, don’t hesitate to reach out to us and we’ll be more than happy to assist you.

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