Geraldine Tyler, a ninety-three-year-old homeowner, owed Hennepin County, Minnesota, nearly $12,700 in delinquent property taxes, plus interest, penalties, and costs. To cover her debt, the County foreclosed on her home and sold it for $40,000. However, the County also kept the surplus $25,000 as profit.
Minnesota, along with thirteen other states, authorize various government agencies to satisfy assorted government debts associated with real property by confiscating all title and equity in an owner’s property. Equity means the value in a piece of property beyond the encumbering debt. No one disputes the government’s ability to forfeit property to cover debts but Ms. Tyler argues the county cannot take the equity in her home.
Tyler asks the United States Supreme Court to rule Hennepin County’s forfeiture of the equity in her home an unconstitutional taking and excessive fine. However, the County argues that Tyler failed to pay her property taxes for five years, she had time to pay those taxes, and therefore the County was not required to refund Tyler any money from forfeiting her house to pay the property taxes.
Here to discuss this important case are Nancie Marzulla, who filed an amicus brief with the Atlantic Legal Foundation on behalf of the petitioner’s position, and John Bursch, who filed a petition for a writ of certiorari in Meisner v. Hall asserting the respondent’s position in Tyler.
For more information on Tyler v. Hennepin County, check out this Fed Soc blog post by Stephen Davis.
- Nancie Marzulla, Partner, Marzulla Law
- John Bursch, Founder, Bursch Law PLLC
- Moderator: Tony Francois, Partner, Briscoe Ivester & Bazel
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As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.
Jack Capizzi: Welcome to today's Federalist Society virtual event. Today, April 17, 2023, we are excited to present a "Courthouse Steps Preview" in the case of Tyler v. Hennepin County, Minnesota. My name is Jack Capizzi, and I'm an Assistant Director of Practice Groups at The Federalist Society. As always, please note that all expressions of opinion are those of the experts on today's call.
After our speakers have given their remarks, we will turn to you, the audience, for any questions you might have. If you do have a question at any point during the program, please type it into the Q&A feature at the bottom of your screen, and we will handle them as we can, towards the end of today's program.
Now, with that, thank you all for being with us. And I'll turn it over to our moderator for today. Our moderator is Tony Francois. Tony is a partner at Briscoe, Ivester, & Bazel, and is a member of our Environmental Law and Property Rights Practice Group executive committee. Tony, with that, thank you all for being with us. The floor is yours.
Tony Francois: Thank you very much, Jack. And, thank you, everybody who's joining us for participating in this Federalist Society preview of the Supreme Court oral argument next week in Tyler v. Hennepin County, Minnesota. This case is set for argument next Wednesday, April 26. And it's the last oral argument of the Supreme Court's October 2022 term, at least, the last scheduled one, at this point.
I want to start our program today by noting that it's been a banner year at the Supreme Court for my former colleagues at the Pacific Legal Foundation who represent the petitioner Geraldine Tyler in this case. PLF has had three cases argued this term, including Sackett v. EPA, which was the first case of the term. They'll now be finishing the term with Tyler v. Hennepin County, and, in between, recently won the Wilkins decision, which rules that the statute of limitations in the Quiet Title Act is not jurisdictional.
So, we turn now to PLF's third case of the term, Tyler v. Hennepin. And this case addresses what has become known as home equity theft. This arises in the context of property tax law, and, particularly, property tax foreclosures by local governments in about a dozen states in the country. In the ordinary course of a homeowner or other real property owner fails to timely pay the property tax that's owed on their real estate to the local authority, local law ubiquitously allows — after the passage of a specified period of time, usually with certain due process protections, and, frequently, an opportunity to cure — ultimately, if the tax remains unpaid, the local government is authorized by law to sell the property at a public auction in order to satisfy the tax debt.
In most states, any excess in that sale price over the tax debt is returned to the owner of the property against whom the government has foreclosed. But, in several states — including Minnesota, at issue in this case before the Supreme Court — the local government actually keeps the profit from the sale of the property, along with its tax debt. And this is the practice that has become known as home equity theft. Pacific Legal Foundation has led the charge over the last several years in ending this practice. And, just a few months ago, the Supreme Court granted certiorari in Geraldine Tyler's case against Hennepin County Minnesota.
The questions presented in the case are whether the practice of home equity theft violates the Takings Clause, and whether it violates the excessive fines clause. So, for today's program, we've got two excellent guests who are going to provide some perspectives on each side of this issue. Our speakers today are Nancie Marzulla and John Bursch.
Nancie Marzulla has, for decades, handled many high-profile, complex takings cases, involving claims for many millions of dollars. She has also participated in every significant takings case in the Supreme Court since the early 1990's. Her practice is largely devoted to takings cases brought in the U.S. Court of Federal Claims seeking compensation from the United States for confiscatory federal actions.
She is the former president of Court of Federal Claims Bar Association, and the co-chair of the Chief Judge of Court's Advisory Council. She has received the Court of Federal Claims' highest award, the Golden Eagle, and has been awarded every award issued by the Court and Bar Association, including the James Madison Award. Nancie is the co-founder, with her husband, of Marzulla Law LLC, which is based in Washington D.C. She has also written and spoken extensively on takings issues, including a book on federal takings that she co-authored.
Nancie proudly serves on the advisory council for the Atlantic Legal Foundation, a national non-profit public-interest law firm whose mission is to advance the rule of law and civil justice, individual liberty, free enterprise, property rights, and limited and responsible government decision-making based on sound science. Nancie was honored to work in conjunction with Larry Ebner with the Atlantic Legal Foundation to prepare and submit an amicus brief in support of Geraldine Tyler in the case. We'll have Nancie speak, and then, when she's finished, I'll introduce John, and we'll get his remarks. So, Nancie, the floor is yours.
Nancie Marzulla: Well, thank you. And thank you for that introduction. And I want to start by also thanking The Federalist Society for hosting today's event on this important case, and for inviting me to participate. And I, once again, do want to thank the Atlantic Legal Foundation for allowing me to prepare an amicus brief that focuses on the property rights issue.
And I also want to just take a moment to give a big shout-out to Pacific Legal Foundation. I have rarely seen such a well-written, comprehensive cert petition and merits brief as was prepared in this case. It was very impressive. And I think it led to the Court's interest in the case and deciding to hear it. So, let me turn to my brief remarks, and say at the outset that I really have just three points. The first is, and, perhaps, really my most important point, is that the County's position in this case starts from the wrong premise.
The County's argument that no taking occurred here is based on what it points to as its elaborate scheme by which it gives the homeowner numerous opportunities to cure and pay back the property taxes it owes, as well as its penalties and so forth. But this argument, as superficially compelling as it might be, starts from the premise that property rights and property ownership is a government benefit, and that, depending on how the government defines your property rights or makes decisions regarding your property rights, the government ultimately is the decision-maker, and is the arbiter of whether you can retain your rights or not.
But the County is just flat wrong on this point. Property rights are not the creature of state law. Property rights are fundamental, inalienable rights that belong to every American. And we see this reflected in our fundamental documents and writings about the founding of this country, starting with the preamble to the Constitution that begins with "We the people." We the people are creating this Constitution and establishing this government, and the rights then not enumerated and identified in the Constitution are reserved for the people.
This notion of a limited government is echoed again in the Tenth Amendment, which is the amendment that defines the relationship between the federal government and the states, but also reflects the notion that we have a limited government with specific powers identified in the Constitution, and all powers not delegated to the United States by the Constitution are reserved to the states or to the people.
So, then, we look further into our Bill of Rights, and we see specific, concrete examples of where the founders set forth rules that would expressly limit government in invading individual rights and liberty, and we see reflected directly in the Fifth Amendment, which is squarely at issue in this case, and in the Fourteenth Amendment, which incorporates. The Fifth Amendment, too, states that property rights protect individual rights and individual property owners from having their property confiscated without just compensation or due process.
So, I've always thought of the Fifth Amendment in very simplistic terms, in that I see it as a line drawn in the sand between arbitrary, confiscatory, destructive governmental action on the one hand, and then, on the other hand, the domain of "We the people's" rights, individual rights and individual liberty. So, here, the County's view, then — which is diametrically opposed to the notion of a limited government — made it quite easy for it to say, "Well, gee, we'll build in a bunch of really nice processes, a complicated scheme, and give you a bunch of chances, and you can get your property out of foreclosure and get back into good graces with the taxing authorities."
And, in reviewing these actions, the Eighth Circuit made the ultimate error in what I think is the most chilling aspect of this case, is the decision that the Eighth Circuit could conclude that well, there's no taking here, because Geraldine Tyler didn't have any property rights in the surplus equity in her condominium, because the Minnesota legislature had legislated away her property rights. They've just defined it out of existence. And I think this has always been the ultimate fear for property rights proponents, that we always say that you look to the state to define property rights. But what if the state says, "Well, we're defining away your property rights," as Minnesota very clearly did here?
Again, taking my line analogy, you can also view that line as a floor, however, and say that the Fifth Amendment also serves as a floor below which a state cannot legislate or regulate. And that floor is exceeded or breached when the state actually defines away a recognized and established property right, such as homeownership or home equity. It really takes little imagination to see this Tyler rationale applied by cash-hungry governments elsewhere in other taxation schemes.
I have visions of the IRS, in seeking delinquent income tax penalties, seizing a paycheck, and saying, "Okay, we're now going to take out of your paycheck," which the IRS, of course, can, "back taxes, owed interest, penalties, and so forth," but then, saying to the taxpayer, "Well, guess what? The Treasury Department has promulgated a regulation that says we also get to keep the balance of your paycheck." It's a rationale that would have seemed laughable, prior to the Tyler case. But it is, in fact, plausible.
So, in short, I think this is a crucially important property rights case. But it's one that I actually feel quite optimistic about. And I am mightily heartened by the fact that the Solicitor General, which filed a brief in this case and has been granted argument time, filed an amicus brief in support. Purportedly, not to support either party, but it makes a surprisingly strong property rights argument, saying that the County has engaged in a compensable taking by obtaining absolute title to the property more valuable than her tax debt, and that, historically, the taking of absolute title to property more valuable than a tax debt requires compensation.
Now, this is from an administration that is not noted for its vigorous protection of private property rights, so I feel optimistic that we're going to get a favorable ruling for Tyler in this case. Recognizing that time is short, I want to briefly touch on my other two points. And that is to look at some of the other issues before the Court in the oral argument. I think this is going to be a really interesting oral argument. And the case is going to provide a lot of issues for the justices to delve into.
Notably, there's the Eighth Amendment argument, the excessive fines issue. By my count, and correct me if somebody has a different number, but I counted 36 amicus briefs: 25 for Tyler, 10 for the County. And then, of course, the one SG brief. A lot of the amicus briefs that supported Tyler actually focused on the Eighth Amendment issue. And they all come out swinging, arguing that the results of the County's actions, the tax sale, were grossly disproportionate and far exceeded what was purely remedial, and, therefore, violated the Eighth Amendment.
Notably, the SG asked the Court not to reach the Eighth Amendment issue. The SG's office wanted the case decided on the basis of the property rights issue. Other groups, such as the AARP, focused on the disproportionate impact of home equity theft on our elderly population. A legal aid services amicus was filed by the legal aid services in New York. And they talked about the strain that home equity theft has on the social welfare system, and how it eliminates a core component of the American dream.
And then one interesting amicus brief argued that the County's actions ran afoul of the Uniform Commercial Code, the UCC, because its actions were not commercially reasonable and didn't provide equity and fairness among creditors. So, you can see that there are a lot of issues that could appeal to the different justices with their different perspectives on the Court. And, if nothing else, I think some of the equitable concerns will animate their constitutional analysis. So, it will be quite interesting to see which direction the argument heads. And I understand there's been 65 minutes allocated. There are a lot of issues to cover in 65 minutes.
So, finally, let's just mention the point I wanted to make about a very narrow basis on which the Court could reverse the Eighth Circuit, and that is just strictly on the basis that the Eighth Circuit misconstrued prior Supreme Court decisions. There is an 1884 tax lien decision, and then, a more recent 1956 decision, Nelson v. City of New York, which the Eighth Circuit relied on heavily, misconstruing the decision to suggest that if all the state had to is to provide some procedural protections, then it was free to take whatever home equity it wanted to, with constitutional impunity.
We made the point, in our brief, that that is wrong. Interestingly, the SG came down hard on that argument as well, and said that is not what these cases stand for. The cases very clearly say that the state can't simply absolutely extinguish the right to the homeowners' surplus equity. So, a very, very interesting case. And I look forward to the argument. Thank you.
Tony Francois: Thank you, Nancie. We'll now hear from John Bursch. John owns Bursch Law PLLC, an appellate boutique based in West Michigan with a focus on complex litigation matters involving high-stakes issues, substantial publicity, and the highest levels of the court system. John has argued twelve cases in the Supreme Court of the United States, more than three dozen in state supreme courts, and hundreds of others in federal and state courts around the country.
John is a fellow of the American Academy of Appellate Lawyers, and appears regularly in Best Lawyers, Michigan Super Lawyers, and Benchmark Litigation. John also serves as vice president of appellate advocacy for Alliance Defending Freedom, although his remarks for this Teleforum are not on behalf of, nor do they represent the views of ADF. Thank you, John. The floor is yours.
John Bursch: Thank you, Tony. Thank you, Nancie. Thank you FedSoc, for putting this on today. I want to start by acknowledging that it's rare that I'm on the opposite side of an issue from Pacific Legal Foundation. Nearly all the cases that I work on, in both my capacities, are on the conservative side of the spectrum. So I find myself in the uncomfortable position of parting ways here, especially being on the side, as Tony put it, of supporting home equity theft.
But I think what the government defendant here would say is that this case is more about personal responsibility, and that when you fail to pay your taxes for years on end and reject multiple opportunities to make things square with the government that you legitimately owe money to, that it is not your constitutional right to conscript the government as your real estate agent, aggrandize all the profits to yourself, and then socialize all the losses by sticking other taxpayers with the bill when there's a shortfall, which is nearly almost always that case. This Tyler case is one of the unusual ones where there is any equity.
And, I think, as conservatives and as Federalists, we need to be very careful about having the federal government wade in and federalize state property laws by defining the scope of state property rights. And I appreciate Nancie's devotion to our founding documents. I share that devotion. But the way the U.S. Supreme Court has interpreted them — and the Takings Clause, in particular — they run exactly the opposite way. At least four times in the last fifty years, the U.S. Supreme Court has made clear that the property rights protected by the Takings Clause are creatures of state law.
That's in the Cedar Point Nursery case, Phillips v. Washington Legal, Lucas v. South Carolina Coastal, and Board of Regents of State Colleges v. Roth, that the Constitution does not define state property rights. Those are defined by state governments. And so, when the Eighth Circuit, in its opinion in this case, starts with the scope of real property rights in Minnesota, as defined by Minnesota common-law courts and by the state legislature, that's exactly the right starting place. And it's the states' prerogative to determine what should happen during the process when taxes are not paid when they should be.
The second point that all conservatives and Federalists should be concerned about in this case is the notion of personal responsibility. In nearly every state that has a property tax foreclosure regime, people are given multiple opportunities to pay their taxes, repeated notices, usually a two-and-a-half to three-year process, or more, to pay their taxes. And then, even after the property is foreclosed for non-payment of taxes, they have the opportunity to redeem the property simply by paying them at the end.
We're talking about people who persistently fail to pay their taxes. And, sometimes, the argument is "Well, I didn't have notice." Well, that's a due process problem. And if you didn't receive notice legitimately, then you've got a gripe that you can take up with the courts and the government. That's not what these cases are usually about. In some of the Michigan cases that I have, that are mentioned in the program summary, not only did you go through a two-year process trying to get folks to pay their taxes, there was actually an agreement, where they would repay their taxes on a monthly basis going forward. And they failed to do that, too.
And after going through yet years more of process — we're now talking about five years of unpaid taxes — it was only then that the property tax was forfeited. And, in Michigan, as in Minnesota, there is no such thing as equitable title. It doesn't exist, and never has. And so, the federal court, in the Hennepin County case in the Eighth Circuit, did exactly the right thing by homing in on what those property rights are.
The last thing that conservatives and Federalists should care about is history. We never interpret constitutional provisions, or even constitutional rights, without looking at history. The Bruen case was an excellent example of that, the Coach Kennedy case the same term, even Dobbs last year. All great examples of how we look at history. But if you look at the history that Tyler uses to justify a Takings claim here, it's based very little on property tax foreclosures, and, instead, on all kinds of other things.
For example, she claimed a circuit split, and justified the cert petition grant here, by claiming a conflict with the Sixth Circuit in the case that I have on behalf of Oakland County. And there, in the history that the judge has recounted, 95 percent of it applied to the foreclosure of private mortgages. And I think we can all agree that private mortgages and public tax liens are two completely different animals, when you look at history.
And so, if you look at the Hennepin County brief on the merits in this case — it was drafted by Hogan Lovells — it meticulously goes through hundreds of years of common law history, going all the way back to England, showing that, during that entire course of history, it was entirely common that government would be able to foreclose someone's property, in total, for the non-payment of taxes, recognizing that the payment of taxes is for a public good, and that you can't have people conscripting the government as their realtor, and then aggrandizing all the profits and socializing all the losses. That's not the way that this works.
So, when you put all those pieces together, this is nothing like the IRS getting to keep the balance of your paycheck. Once they have your taxes, they don't have the right to anything else. But when you buy a piece of property in the state of Minnesota, in the state of Michigan, or any other state, there's an implied understanding — if you want to call it a contract or if you just want to call it property rights, but in the background — that applies to that piece of property if you fail to pay your taxes.
And the federal government and the U.S. Supreme Court have consistently recognized that states get to set those rules. In that case that Nancie referred to, the Nelson case, the U.S. Supreme Court could not have been more clear. It's an old case, but it involved what some would say a home equity theft regime in the state of New York. And the U.S. Supreme Court said, as long as New York gives you adequate notice and an opportunity to pay, they're entitled to set the rules of the game for your property. That's the way that the Fifth Amendment works.
So, very briefly on some of the other legal theories that have been advanced here. The Eighth Amendment excessive fines claim is creative, but the U.S. Supreme Court traditionally has applied the Eighth Amendment only to criminal cases, not to civil cases like this one. So, while it's creative, it's wrong, right out of the box. But, in addition to that, the excessive fines principle is that the government cannot assess a criminal fine that's too severe when compared to the offense that's being punished.
So, say that there's a civil fine for kids who knock over mailboxes with their baseball bat. If you assessed a $500,000 fine for that misconduct, that would clearly be an excessive fine. But when someone fails to pay their taxes, it's difficult to say that losing the property, which you have as a right because you pay your taxes, is an excessive fine. I just don't see that. And the same is true with respect to the Uniform Commercial Code. Again, it's creative. But it was not something that the Pacific Legal Foundation raised below, as far as I'm aware.
And, in addition, just like property owners, creditors, when they come to the table and they give a mortgage on a piece of property, are well aware of what will happen if taxes aren't paid. If taxes aren't paid, the property is gone, and then the creditors don't have anything to say about that. Those are the basic rules of the game. And so, under the Uniform Commercial Code, anybody who comes to the table knows that.
Now, if you are a bank or other financial institution and you've provided the financing for the mortgage, that mortgage, typically, has an important provision in it. It says that if you, the property owner, do not pay your taxes, then I, the financial institution, the one holding the mortgage, have the right to pay those debts for you, and then assess them to you in the form of a bill, because everyone recognizes that the government gets your land when you don't pay your taxes. No one gets to just conscript the government as your personal realtor and keep all the gains and socialize all the losses.
This is the way that it's been done in the United States for hundreds of years. It was done under the common law before that. And there's nothing in the UCC that would suggest that the treatment should be otherwise. So, again, while I typically applaud all the work that the Pacific Legal Foundation does, I thought the Sackett and the Wilkins cases were brilliantly argued. I thought those were great results. I do think they're on the wrong side here. They're pushing a theory that would allow federal courts to define what state law property rights are, contrary to anything that the U.S. Supreme Court has ever said about that subject before.
It allows property owners to avoid any notion of personal responsibility, because they can persistently refuse to pay their taxes and still benefit when the government is forced to sell their property. It hurts society, because many of these land holdings are going to be abandoned properties. They result in some of the worst blight that we have in our nation's biggest cities.
And, finally, the theory that they advance is just completely inconsistent with the history of the common law in this country when it comes to tax foreclosures. So, for all those reasons, I think that the Supreme Court should rule in favor of Hennepin County. That said, home equity theft is a pretty good catch phrase. And I'm skeptical that that's going to happen. Thank you.
Tony Francois: Thank you, John. So, great discussion going here. I wanted to start out with a question to both of the guests. Maybe we'll start with you, John, and then go to Nancie. I think Nancie mentioned the possibility that the justices' interest in this case and where they see the equities and the law in history may not fall along the expected conservative/liberal division within the Court, to shorthand it that way. For each of you, what do you think the argument is going to look like? And do you think there will be surprises or unusual bedfellows among the justices, in their view of the case, John?
John Bursch: Well, I do think the justices have an intense interest in this case, because they took it after there were only two circuits that had weighed in on the issue. It's a one/one circuit split. And the Court will sometimes act in that situation, but that's a fairly shallow split for them to act so quickly and so decisively. So the interest is obviously high. Ordinarily, if you look at history and tradition, if you look at Federalism, if you look at the way that the conservative justices have interpreted the Fifth Amendment, all of those things run in favor of the conservative wing of the Court ruling in favor of the County and asking questions that will be very difficult for plaintiff Tyler to answer.
But, as I mentioned, home equity theft is pretty catchy. And the equities are clearly on the other side. And, sometimes, even conservative justices can be swayed by gut equity, as opposed to history and tradition and applying the law. So I expect that Hennepin County is going to have a pretty rough go of it at oral argument.
Tony Francois: Nancie, what do you think about that?
Nancie Marzulla: Well, I think I alluded to it earlier. I think it will be interesting to see. These arguments tend to take on a life of their own. And you think they're going to start down one pathway, and they wind up going off in an entirely different direction. And there's so many pathways, so many different questions that may be of interest to the different justices, that it could be a very hot bench, and they could ask questions about a variety of these issues.
Tony Francois: Okay. Jack, it looks like we've got some questions in the Q&A queue there. Do you want to tee some of those up? It looks like there's a good one there from Stephen Davis, maybe.
Jack Capizzi: Sure. Stephen asks -- this is a question for John. He asks, "The landowner here paid penalties, costs, and interest, in addition to her back taxes, amounting to about three times the amount of her taxes. So how does Pacific Legal's position force all other taxpayers to bear the consequences of the landowner's failure to pay her taxes?
John Bursch: Well, in the run mill of these cases, there's not going to be equity. There's going to be a deficit. And so, in each one of these instances, what the property owner is doing, as I mentioned, is conscripting the government as realtor. And, if there are losses, which will happen 90 percent of the time, maybe even 95 percent of the time, then all of us get to pay for that, even though it was the taxpayer's responsibility to come clean and pay all their taxes. But then, if there's any profit at all, the individual gets to keep them.
Now, think about how unequitable that is. At the time that the tax bill came, Ms. Tyler had several options. She could have simply paid the taxes out of any assets that she had. If she didn't have enough assets to pay her taxes, then she could have gone and gotten refinancing, and she paid the taxes. Or — and this is what, as conservatives and Federalists, we should all be encouraging — she could have gone out, sold the home herself, used the proceeds to pay the taxes, interest, and any penalties that were owed, and then kept the rest for herself.
But rather than exercising any of those three options, she did the one thing she couldn't do under Minnesota's statutory scheme, which was to force the government to sell the property. And then, when it did, to put her hand out and say, "I want the surplus." That's not the kind of conduct that we should be encouraging in our citizens. It's certainly not conservative. And there's nothing in the Constitution that requires it.
Nancie Marzulla: I'd like to just jump in, if I may, and comment on this question. I just think the whole personal responsibility argument is a red herring. The notion that property owners look to the taxing authority to serve as their real estate broker is just almost nonsensical. I don't think anyone would argue reasonably that properties sold in tax lien sales are the best way to get a return on your housing investment. And, as the prior questioner pointed out, these tax sales the government skims with its sticky fingers, takes money for this, money for that, etc., etc.
And, here, where they do wind up, and apparently there are enough instances where governments do wind up with surplus equity because we have decisions on such circumstances. But where they wind up with the surplus equity, it is, I think, not responsible of the government to, rather than return it to the estate of the property owner, or, if the homeowner is by then deceased or disabled, the executor of their affairs, trustee, whoever, it's irresponsible of government to not return the surplus equity and instead sort of say, "Yippee, we've got all this cash now. We would like to put it in a park here. We'd like to do some building over here." That is not responsible government. So, I don't see this as a personal responsibility case.
John Bursch: Well, as someone who's represented county governments in this situation in Michigan, I can say none of them are saying, "Yippee, hooray," when someone fails to pay their taxes over a two-and-a-half to three-year process involving multiple notices and multiple court proceedings. All the government wants people to do is to pay the taxes that are owed. They don't want to charge interest. They don't want to charge penalties. Certainly, there are carrying costs when the government has to wait for its taxes. That's why we have interest.
Certainly, there is a ton of bureaucratic time involved, when you have to go through the property, of notices and the tax foreclosure proceeding, actually multiple proceedings before a judge. And so, they don't have sticky fingers. But they do charge for that. But if people would just take the responsibility to pay their taxes, the government would be perfectly happy.
And I guess my question is why didn't Miss Tyler pay her taxes? It hasn't been alleged that she was incompetent. It hasn't been alleged that she was too elderly to pay her taxes. It hasn't been alleged that she was disabled and couldn't pay her taxes. She just didn't do it. And what about our plaintiffs in Michigan? Even after they had agreed to pay the government, after initial foreclosure proceedings had been started, they didn't make good on that. And then, now they want to come back with their hand out. I think this is all about personal responsibility.
Nancie Marzulla: Well, I guess we can agree to disagree on that. One other thing we might agree to disagree on is the definition of property rights. I do agree that the cases generally do say that states define property rights. But my point earlier, which I don't want to lose, is that the Fifth Amendment is more than just procedural protections, and that, okay, if the state decides to take property to inverse condemnation or direct condemnation, it has to pay just compensation, and that's just sort of the end of it. It's just sort of a procedural process.
I think the protections of the Fifth Amendment are more profound than that, and that there comes a point below which states cannot simply define away property rights. Otherwise, we could easily reach the point that we just simply don't have property rights. And I think this case very much points up that circumstance.
Tony Francois: Well, that's a great exchange. Jack, what else do we have from the audience here?
Jack Capizzi: Sure. So, we have another question from Alexander Smith, who is also asking a question for John. And he mentions that you touched briefly on the role of equity here in this case. And he was wondering if you could just sort of expand further on what role that's playing or your thoughts on that.
John Bursch: Well, equity is definitely the driver of the case. Miss Tyler's claim is that she had equity in the property, in other words, money that, had you sold the property at fair market value, would have exceeded the debt that she owed to the bank. That's the goal of all of us, is to build equity in our homes. Eventually, at some point, you pay off your mortgage, and you've got 100 percent equity in your home. And so, her argument -- and, again, from an equitable standpoint, it makes sense that if the government takes her home, she has the ability to keep her equity.
But the problem is, the government shouldn't be the one who has to safeguard her equity. As I mentioned, if she wanted to keep the equity, she was free to do that. All she had to do was pay her taxes, even if that meant selling her home to pay the taxes, and then keeping the surplus equity. That was all hers. The one thing that she couldn't do was to rely on the government as her realtor and then to come back and claim equity after the fact. And, again, it seems totally unfair, in a situation like this.
But consider a county like Wayne County in Michigan, which is in the heart of Detroit, where there are hundreds, and, sometimes, thousands, of abandoned properties where taxes are not being paid at any given time. If the government doesn't have an efficient statutory regime — and I say, "efficient," as in multiple notices, and two-and-a-half to three years of notices and litigation — where they can take that property and then dispose of it, whether that's to raze the abandoned, dilapidated properties, or try to sell them to somebody else, then the city ceases to function. That's the whole purpose of these things.
And it's not their burden to safeguard equity. That's on the property owner. And when they fail to do that, that's the personal responsibility that I've been talking about. It seems harsh. But that's what happens with a lot of our debt obligations. If I've got a car that I've purchased, and I've got a loan for it, and I fail to make my loan payments, the bank is going to take away my car. If I've got trash collection service and I stop paying the bill, then the trash is going to pile up at the end of my driveway.
We all have the responsibility to pay our bills. And the tax bills are some of the most important, because that's the revenue that keeps our roads in shape, that keeps the police and firefighters coming to our houses. And, as Nancy said, it keeps those parks open. So, we've got to not only have those types of fees, but we've got to safeguard them. And tax foreclosure is the way to get people to pay their taxes.
The last point I'd make is that, if you didn't have that system where, if Tyler's rule is adopted, and everybody, if they get into a situation where they don't pay their taxes, can just get the home equity back, then what incentive do they ever have to pay taxes? Might as well just let it be foreclosed.
Nancie Marzulla: Well, John, I think the one thing that we can agree on is that government does want you to pay your taxes. And they like to tax. And they like to collect your tax dollars. However, I should add, the government also, in many cases — I won't talk about D.C. government, but in many cases — local governments do a great job using real property tax proceeds to do some really fine things. But those good intentions do not justify — as one of the Supreme Court justices so eloquently said — a shorter cut than the constitutional way of a government comporting itself.
This case has nothing to do with paying for your trash pickup. It is, rather, about how far states can go, in terms of invading private property rights protection. We know that property rights have historically been broadly defined. The literature of the founders of the country are replete with broad definitions of private property case law itself. Kaiser Aetna, Armstrong, you name it, the cases broadly define property rights. One of my favorite discussions of the definition of property rights is actually from the D.C. Circuit, involving the Nixon presidential papers.
And there, the D.C. Circuit does a fabulous job of talking about the historical roots of property rights, its definition. And the notion that there are no contours to property rights definition, other than just whatever whim a state might come up with, is, I don't think, consistent with our understanding of property rights and property rights protection. So, while we may agree on the desire to collect taxes, I don't think we will -- we will continue to disagree on how far the state can go in defining away property rights.
Jack Capizzi: Thank you both. Another question that we have is from Jack Park, who asks, "What about the Michigan Supreme Court's decision in Rafaeli?" That's Rafaeli v. Oakland County.
John Bursch: So, now someone's really trying to get me here. Because I argued Rafaeli in the Michigan Supreme Court. And, that court, which is composed of a mix of liberal and conservative justices, voted unanimously, 7-0, to uphold a Michigan property law right of equitable title. Now, of course, the Michigan Supreme Court, defining Michigan property rights, had the ability to do that. The problem is that what Miss Tyler is asking is for the U.S. Supreme Court to do something that Minnesota's legislature and Minnesota's common-law courts have not done, which is to recognize this equitable title concept.
For those who agree with Nancie — and I'm one of those — that property rights, traditionally, in this country, real and personal, have been broadly defined, I encourage you to take a look at Hennepin's County's bottom-side brief in this case, their merits brief, because it does establish, I think, conclusively, that that's true, except for the government's right to take your property for non-payment of taxes. That's a tradition that precedes our country's founding, precedes the establishment of all of our states, and has continued almost unabated, right up until the present day.
And I think it's a dangerous precedent for Federalism when states take a concept like property law, which is supposed to be a state creature, and they federalize it. Because then they can federalize any other aspect of state law that they want. That's an aggrandizement of judicial power in a way that the Constitution prohibits. And, while I disagree with Rafaeli on the merits, at least the process went the right way. The Michigan Supreme Court decided it for Michigan. It wasn't a federal court deciding it for the entire country.
Nancie Marzulla: I would just add that, to the extent that the property rights issue is federalized, it's federalized in the Fifth Amendment. I might also add that the majority of states don't do what Minnesota does. They do require the return of the surplus equity to the property owner. So, I think there's quite a horse race here. And I think that Tyler has good grounds to be optimistic for a favorable ruling.
Jack Capizzi: Well, Nancie, I think that that relates somewhat to another one of our questions. This one's from Jenny Gannon, who's asking about Minnesota, specifically, and if you have any more information that you can provide about the specific state law that gives Minnesota this unique right to surplus equity.
Nancie Marzulla: Other than what I've just said, but I will say that if you really want to dig into this issue, I would very much direct you to the petitioner's brief. Because they have a compendium of authority and excellent analysis that I didn't attempt to master all of the ins and outs of the context, other than the fact that the state itself has the legislatures declared this. But, for a really deep dive, I'd direct the questioner to the petitioner's brief.
John Bursch: Yeah, I think that's a fair summary, that the Michigan legislature did it by statutory regime. And what they did is they designated all the processes that have to happen. And then, at the end of that, they said, "And if there's any money left over, then this is what's supposed to happen to it." And, unlike some other states, as Nancie mentioned, they did not direct that that money go back to the property owner. But they directed it to other government purposes. And so that's why the Eighth Circuit concluded that, as a matter of Minnesota law, there was no such thing as equitable title, because the Minnesota legislature didn't recognize it.
The compendium though, comparing what the different states do, really proves the federalism point that different states do this differently. And, as Minnesota voters and property owners and non-property owners make the decision that, in Minnesota, you should get your equity back, as opposed to losing that as a result of not paying your taxes, they sure have a remedy for that.
All they have to do is go to the legislature and the governor and ask for that law to be changed. Or they could even do what happened in Michigan. They could go to the court system, and they could ask the state supreme court to define Minnesota property law to include the notion of equitable title, as happened in Rafaeli. But the one thing that can't happen is a federal court aggrandizing to itself the power to decide what state law should be. That's up to the people of Minnesota.
Nancie Marzulla: Of course, the devil is in that detail, is it not? Because the Bill of Rights protects those rights of individuals which traditionally are the majority wanting to inveigh, and the minority left holding the bag. It's true, with respect to everything, all the rights protected in the Tenth Amendment. And that's why this case is so important. It's for the Supreme Court to step in and say, "States can't do this. The states can't define away property rights."
John Bursch: See now, that's the funny thing. Because you would think that a mammoth majority of voters would all be in favor of refunding the surplus equity. The fact that they haven't chosen to do that, in roughly a quarter or so of the states, I think is pretty compelling democratic evidence that maybe the equitable title concept is not the panacea that it appears to be.
Nancie Marzulla: Yes. Or maybe the voters like the park, and don't necessarily care about Geraldine Tyler.
Tony Francois: What else do we have out there, Jack?
Jack Capizzi. Sure. So, we've just had another question come in for John. Let's see here. Okay, so if there's world of difference between goods and services non-payment recoveries, and a citizen's primary home, effectively, the government would be in the business of contributing to delinquencies and abandonments that further degrade the quality of communities to the detriment of other local residents, which contributes to the blight/flight effect. Does the County law provide a mechanism to reduce or waive fees or penalties, on an ad-hoc basis?
John Bursch: I'm not sure about Minnesota, but in Michigan, the answer to that is unequivocally yes. Not only are there statutory provisions built in that allow you to waive interest and fees and things like that, but local government counties can, and often do, enter into payment plans at reduced fees, to try to keep people in their homes. Michigan counties do a commendable job of trying to help homeowners stay in their homes. And it's only as a matter of last resort, when no money comes in, that they're forced to foreclose.
Nancie Marzulla: I don't know the answer to that question.
Jack Capizzi: Well, thank you both. That looks like it covers most of the questions that we've had. Tony, are there any final points that you'd like to raise in our last few minutes?
Tony Francois: Well, just one thought, and if there's an opportunity for just a brief response from each of the guests, thinking back to the Supreme Court's about decade-old decision in the Koontz case, which was about development exactions. But there's a discussion in that decision about the difference between fees and taxes, between development fees that the unconstitutional conditions doctrine applies to, and taxes. And maybe it's kind of an easy way out, in the way that opinion is written, but it says the courts understand how to recognize taxes when they see them.
And so, I wonder if either of you has any thoughts on whether we're actually starting to get into the thick of that question. Do federal courts have to start sorting out what are state taxes? Is this non-refund, however you want to characterize it, the difference of value between the sale price and the tax debt? Is that a tax of some sort? And do we need to have a federal outline of what states can call a tax?
Nancie Marzulla: That's an interesting question. First of all, I think the Court has before it a broad palette of issues already. And I guess I would be slightly surprised if they go beyond the issues before them and start looking for other issues. That being said, fundamentally, this would strike one as a taxation case. And it's only the fact that the county, I think, stepped over the line, that turns this into a property-rights case, or, some would argue, an excessive fines case.
That being said, I thought the petitioner did a really good job of jettisoning issues that could allow the Court to get off-track and head off on issues not focused on the two issues they wanted the Court to focus on: the Fifth Amendment and the Eighth Amendment. I thought that was well done. It was very strategic. And I think the Court will grapple with the issues squarely presented squarely before it.
Tony Francois: Thanks, Nancie. Any last thoughts on that, John?
John Bursch: Yeah, I agree that that's an issue the parties haven't really squared up, that I'd be surprised if the justices jumped into it. If they did, I don't think this is a case where they would need to draw any of those kinds of lines, because this is not an in personam action, it's an in rem action. It's just against the property. It's not against the individual. So, just like when you use your car to sell drugs, and there's an in rem action to forfeit the car because of your illegal activity, the government gets to take your car, because it was used in the crime.
And it doesn't matter that the value of it exceeded what you owed, or what the value of the drugs were, or anything like that. The government just gets to take it, because it's an in rem action. And it's the same thing with the house. When you fail to pay the property taxes, it's in rem. It's an action against the house, and so, you lose the house. And I think it would be difficult to characterize that post-hoc as a tax or a fee or anything else. I think, if you don't pay your taxes, there's a natural consequence. And that's losing your property.
Tony Francois: Well, I think that's a good note to send it back to you, Jack. Thanks to both of our guests today. Very good discussion, and it should promise to be a very interesting argument next week.
Jack Capizzi: Absolutely.
John Bursch: Pleasure to be here. Great job, Nancie.
Nancie Marzulla: Thank you. Nice talking with you all.
Jack Capizzi: Thank you all for joining. Thanks to Tony, of course, for moderating. And please keep an eye on our website and your emails for some announcements about upcoming events. We will be doing a program next Wednesday, after oral argument in this case. That will be at 2:00 p.m. Eastern. So please join us for that if you can, as well. And, with that, thank you all for joining. Have a great rest of the day.