Looking Up

Ending Home Equity Theft in the North Star State

Executive Summary

WHEN GERALDINE TYLER, an elderly widow, moved out of her Minneapolis condo to an apartment in a safer neighborhood, she didn’t know she could lose tens of thousands of dollars in equity she had saved up in her home.

Geraldine could no longer afford to pay the property tax on her condo along with her new rent payments. To collect her property tax debt, Hennepin County took her condo and kept all the savings she had invested in it. Unlike most states, which return what isn’t owed to them after the tax debt is paid, Minnesota counties and localities seize and keep windfalls at the expense of their unfortunate residents.

While government has the power to collect unpaid taxes from homeowners by seizing and selling their homes, it is not entitled to keep all proceeds from tax sales—it can only keep what it was owed. Yet approximately a dozen states still sanction this kind of home equity theft.

A debt is a debt, including a tax debt, but taking more than what’s owed is theft.

Geraldine is suing Hennepin County for stealing her home equity—the savings she built in her Minneapolis condo. But Geraldine is not just fighting for herself.

She’s fighting for the hundreds of Minnesota homeowners who have been caught up in this system. From 2014 through 2020, governments seized and sold at least 1,200 Minnesota homes in 12 counties. Residents lost their homes along with all the savings they had built up. The lost savings amounted to an average of $207,000 per home, or 92% of the home’s value.

The lost savings amounted to an average of $207,000 per home, or 92% of the home’s value.

The U.S. Constitution protects homeowners’ right to just compensation for property taken and freedom from excessive fines. Just as citizens should follow the law and pay their property taxes, government must also abide by the law and stay within its constitutional limits.

Minnesota needs to ensure that homeowners’ savings are returned to them if their homes are taken for unpaid property taxes. It also needs to ensure that these homes are being sold for fair market value so that homeowners are not losing a crucial source of savings.

Geraldine Loses Her Savings

In 2010, Geraldine Tyler was a widow living alone in a one-bedroom Minneapolis condo in a neighborhood that was experiencing increasing levels of crime. After a young man in her neighborhood harassed and frightened her, she decided to rent a new place in a safer neighborhood. Unfortunately, she could no longer afford the property tax on her Minneapolis condo in addition to the rent on her new apartment.

Geraldine’s tax bill was $300 to $500 per year. But with punitive interest, penalties, and costs tacked on, the bill had ballooned to $15,000 by the time the county sold her condo six years later.1 Source: Geraldine owed just $2,311 in property taxes, but her total tax bill was more than six times that amount. That’s because Minnesota law allows high interest rates, penalties, and large administrative fees that capture all supplemental costs associated with the collection and foreclosure of the property. See Minn. Stat. §§ 279.01 subd.1, 279.03 subd. 1a, 279.092 (adding penalties of 4%–8% within a few weeks, and 1% per month, interest of 10%–28%, and a broad “service fee”).

Hennepin County took ownership of Geraldine’s condo, which is valued at $93,000, and sold it to recoup her unpaid tax debt.2 Source: Estated, Bulk Data, MN (2,061,654 properties) (February 2021), sold by Estated, https://estated.com/. But the county didn’t stop there. It kept everything from the sale, not returning even a single penny of home equity to Geraldine. Therefore, Geraldine lost all the savings that she had built in her condo.

In every state, the government can take and sell homes to recoup unpaid property taxes. This process, called tax foreclosure, normally looks much like bank foreclosure.

When a mortgage borrower fails to pay their mortgage, the lender can foreclose and sell the home to recoup the remaining loan balance. When a lender sells the home, it collects the contractual debt and returns any extra profits to the former owner.3 Source: See, e.g., Minn. Stat. § 580.10 (explaining that the surplus proceeds from a mortgage foreclosure after paying debts are returned to a former owner). That extra value—home equity—rightfully belongs to the debtor.

Minnesota homeowners owe on average 8% of their home’s value when their home is tax-forfeited.

Minnesota homeowners owe on average 8% of their home’s value when their home is tax-forfeited.

When the government sells a home under tax foreclosure, it should honor that same traditional principle. At a minimum, the government should not enjoy special privileges that it prohibits mortgage lenders from exercising. When a homeowner fails to pay their property tax and the government forecloses on the home to recoup the unpaid taxes, it should return any extra profits from the tax sale to the former owner, as up to 38 states already do.

But in approximately a dozen states—including Minnesota—not only do governments keep what’s owed in taxes and other charges, they also keep the previous owners’ equity.4 Source: The tax-foreclosure process varies widely between states. We’ve identified 12 states that don’t have a process to return the surplus. These home equity theft states are Alabama, Arizona, Colorado, Illinois, Maine, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, and Wisconsin. Though a court case claims that New York has a process to return the surplus, it’s not clear that the process is used or is effective. Several other states have loopholes that allow for the taking of surplus in some circumstances. In these states, tardy taxpayers can lose their homes and all the equity they’ve saved in their homes, regardless of how small the tax debt.

This is home equity theft.5 Source:Pacific Legal Foundation, “Ending Home Equity Theft,” https://pacificlegalnew.mbndigital-staging.com/home-equity-theft/.

Geraldine Loses Her Savings

Unfortunately, Geraldine is just one among hundreds of Minnesota residents who have lost their homes and all the savings they built in them. Since 2014, more than 1,200 homes have been taken under this home equity theft system. The average home equity lost is 92% of the home’s value.

Fortunately, 92-year-old Geraldine has chosen to stand up for her rights and the rights of her fellow Minnesotans by suing Hennepin County over its home equity theft system. Her lawsuit seeks to affirm that home equity theft is unconstitutional, a ruling which would protect all Minnesota homeowners.

This report is the first-ever analysis of the size and scope of home equity theft in Minnesota. The study covers 12 counties from 2014 through 2020. The 12 counties—Anoka, Beltrami, Dakota, Hennepin, Kanabec, Olmsted, Ramsey, Scott, St. Louis, Stearns, Washington, and Wright—are home to two-thirds of Minnesota’s population.6 Source: United States Census Bureau, Population, Population Change, and Estimated Components of Population Change: April 1, 2010 to July 1, 2019 (CO-EST2019-alldata), distributed by United States Census Bureau, https://www.census.gov/data/datasets/time-series/demo/popest/2010s-counties-total.html. The data come from Minnesota counties’ public records and a property data company’s property records, which are collected and standardized from public sources for commercial purposes by the property data company Estated.

Geraldine Fights the Man

Geraldine decided to stand up for all Minnesota homeowners and families who have lost their homes and savings through home equity theft. She filed a class-action lawsuit against Hennepin County and its treasurer, arguing that the government violates the Fifth Amendment and the Minnesota Constitution by taking property without compensation.7 Source: Tyler also raised claims that the county violated the state and federal protections against excessive fines and the guarantee of substantive due process. But a federal court in Minnesota dismissed her claims.

The court concluded that, because Minnesota’s tax statute divests a delinquent property owner of all rights to tax-foreclosed property, the victims of home equity theft have no property interests on which to stake their claims.8 Source: Tyler v. Hennepin Cty., 505 F. Supp. 3d 879, 890-91, 893 (D. Minn. 2020). In other words, the legislature may destroy property rights without just compensation by redefining the rights.

But the legislature cannot override constitutional rights. The Fifth Amendment of the U.S. Constitution prohibits the government from taking private property for public use without just compensation. Property rights encompass more than just physical land and structures. When someone owns a home, they also have a right to the home’s equity—that is, the underlying value of the home after accounting for all debts.

While the government may levy and enforce taxes on real property, it cannot collect more than what is owed. And while it can impose penalties to punish the late payment or nonpayment of taxes, the Eighth Amendment of the Constitution prohibits excessive fines.

Indeed, a 19th-century Minnesota Supreme Court case strongly indicates that regardless of what the legislature says, surplus proceeds from tax-foreclosed property must be refunded to the former property owner.9 Source: See Farnham v. Jones, 19 N.W. 83, 85 (Minn. 1884). The Court noted that “the right to the surplus exists independently of such statutory provision, the province of which would be merely to regulate the manner of enforcing the right.”10 Source: See Farnham, 19 N.W. at 85.

The federal district court in Geraldine’s case disregarded that reasoning, observing that the legislature is free to alter the law.11 Source: Tyler, 505 F. Supp. 3d at 894. Missing from the court’s analysis is the fact that when the government destroys pre-existing property rights, an unconstitutional taking of property has occurred.

That’s why Pacific Legal Foundation has taken on Geraldine’s appeal.

Geraldine owed $15,000 in taxes and fees on her home. Hennepin County sold it as a foreclosure for $40,000 and kept every penny—pocketing $25,000 of Geraldine’s savings. While the government may be empowered to take and sell her condo to collect taxes, reasonable penalties, interest, and fees, it cannot take her equity in the home.

The U.S. Constitution requires Hennepin County to return to Geraldine the difference between what she owed and what the county took. In the context of private mortgage foreclosures, Minnesota law requires that surplus proceeds be paid back to the former owner.12 Source: Minn. Stat. Ann. § 580.09–.10 (West 2021). But in the case of tax foreclosure, where government stands to profit from the transaction, it stacks the odds in its own favor. That’s a type of unethical self-dealing that the government would never allow private sector businesses like mortgage lenders to engage in.

But the legislature cannot override constitutional rights.

In the early days of our republic, and up through the 20th century, state laws and cases from courts across the nation affirmed the common-sense principle that government cannot take more than it is owed in taxes. In fact, prohibitions against similar predatory tax-enforcement practices can be found as far back as Magna Carta in 1215.13 Source: For example, the 26th Clause provided 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, when someone died owing any form of taxation to the king, the king’s officials “were in the habit of seizing everything they could find on his manors, 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 (2d ed. 1914), 322–23; 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).

Today, however, approximately a dozen states employ some form of home equity theft. But one by one, these predatory tax regimes are being challenged through lawsuits or legislation.

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States employing home equity theft

A lawsuit recently ended Michigan’s home equity theft scheme. Uri Rafaeli, a retired engineer, miscalculated the interest on one late property-tax payment by $8.41. That missed amount resulted in the complete loss of his Michigan house and equity, even though he continued to pay future taxes on time without realizing that he had previously underpaid his taxes. Uri bought the home in 2011 for $60,000. When the county government seized his house and sold it at auction for $24,500, they pocketed the proceeds.

Pacific Legal Foundation argued his case, Rafaeli v. Oakland County, before the Michigan Supreme Court and won. The court held that property owners have a right to the surplus proceeds from tax-foreclosure sales under the Takings Clause of the Michigan Constitution.14 Source: Rafaeli, LLC v. Oakland County, 952 N.W.2d 434, 470 (Mich. 2020). Uri ultimately got his house back.

Some states are avoiding the potentially heavy financial liability of losing such a lawsuit by enacting legislative change. This year, North Dakota passed legislation restoring property owners’ right to their home equity. The law requires the government to refund surplus profits to the former owners after selling tax-foreclosed properties.15 Source: N.D. Century Code 57-28-01, et seq. And in 2019, the Montana legislature passed a reform bill protecting most homeowners’ equity.16 Source: S.B. 253, 66th Legislature (MT 2019), https://leg.mt.gov/bills/2019/billpdf/SB0253.pdf.

Massachusetts legislators recently introduced similar legislation. Massachusetts is a state where both the government and private investors are allowed to keep the previous owners’ home equity. The legislation came after the Boston Globe reported on the lawsuit brought by PLF clients Mark and Neil Mucciaccio.17 Source: Sean P. Murphy, “In Mass., private companies can make a killing legally, if you can’t keep up with your property taxes,” Boston Globe, January 18, 2021, https://www.bostonglobe.com/2021/01/18/business/mass-private-companies-can-make-killing-legally-if-you-cant-keep-up-with-your-property-taxes/. The Mucciaccio brothers had struggled to keep up with their tax bills while they faced a medical crisis, resulting in a $4,355 tax debt in 2016. The town of Easton took the Mucciaccio brothers’ home—worth $276,500—and transferred the home’s title to a private investor who purchased the $4,355 tax lien.

Geraldine Is Not Alone: Home Equity Theft in Minnesota

Any property owner can be a victim of home equity theft in Minnesota. However, vulnerable homeowners who are in a medical or financial crisis are more likely to be affected. Home equity theft only worsens the crises, as these homeowners lose their property and a major source of savings.

From 2014 through 2020, 12 county governments took more than 1,200 Minnesota homes from homeowners, who lost all the equity they built in their homes.

The size of home equity theft is in the eye of the beholder. For a homeowner, it is the full estimated market value of their property minus their tax debts. For the government and in the courts, it is often viewed as what the property sold for minus the debts—even if the property sold for far less than its market value. We break down both values in instances where the property records are complete. See Appendix 1 for an explanation of the data.

The Measure of What Homeowners Lose.

To estimate the amount of home equity loss the homeowners felt, we must look not at how much their homes sold for through the tax-foreclosure process, but how much their homes would have sold for in the competitive real estate market.

Across the 12 Minnesota counties, homeowners felt a loss of approximately $118 million in home equity taken (see Table 1). Available data were sufficient to determine the size of home equity theft for 570 of the 1,217 homes in our study.

The lost savings amounted to an average of $207,000 per home. These homeowners lost everything for tax debts that were, on average, worth just 8% of their estimated home value. Thus, they lost 92% of their home equity over and above what they owed in taxes. In extreme cases, homeowners lost over 99% of their home equity.

Across the 12 Minnesota counties, homeowners felt a loss of approximately $118 million in home equity taken.

Where Geraldine lives, Hennepin County, owners of 271 homes lost over $67 million in home equity during those years—by far the largest home equity loss among the 12 counties.

Sources: Taxes and fees due on homes come from public records supplied by Minnesota jurisdictions. Home values come from data collected and standardized by Estated, a property data company.

Notes: This table only represents the foreclosures with complete data (570 out of 1,217). Stearns County had no properties with complete data. Total taxes and fees due on homes refer to slightly different things in each county. In addition, some counties may be missing up to three months of data at the end of 2020. See Appendix 1 for clarification on total taxes and fees due on homes and date ranges.

The Measure of What Government Gains.

Meanwhile, not everyone loses. State and local governments profit from stolen home equity. Multiple government entities, including the counties, divide the equity they take from former owners (see Appendix 2 for the breakdown).

Across the 12 counties, governments kept more than $11.6 million in homeowners’ equity. Available data were sufficient to determine the size of government gains for 772 out of the 1,217 homes in our study.

The large discrepancy between the $118 million figure for the measure of what homeowners lost and the $11.6 million figure for the measure of what governments gained reflects the fact that properties forfeited through tax foreclosure are usually sold at prices significantly below their full estimated market value.

Governments are not in the real estate business, but the difference between how much the government typically sells a home for in a tax foreclosure and how much a bank typically sells a home for in a mortgage foreclosure is inexcusable.

When government entities sell tax-foreclosed properties, they are typically trying to recoup only the properties’ unpaid taxes and costs. Hence, they are more likely to engage in a simple transfer of title or auction than go through a competitive sale process.18 Source: Government entities typically do not have the resources to put tax-foreclosed properties up on the real estate market for a competitive sale process, at least not without contracting out the process to other professionals. From 2014 through 2020, bank-foreclosed homes in the 12 counties in this study sold for a mean value of 60% of the homes’ estimated values. Meanwhile, tax-foreclosed homes sold for a mean value of 20% of the homes’ estimated values.

Also, the $11.6 million figure in our sample understates the total gain the governments actually netted because government keeps some properties, and some tax sales may involve multiple government transactions:

  1. The State of Minnesota sells the home to a county or city for an amount as small as $1.
  2. The locality turns around and sells the same home to third parties for tens of thousands of dollars more a few months later.

Our figure of $11.6 million only captures the first government sale, substantially undercounting the true gain in these multi-round sales or when government keeps the property. From 2014 through 2020, almost one out of every 10 homes in the 12 counties in the study was sold or transferred for $100 or less.

Sources: Taxes and fees due on homes come from public records supplied by Minnesota jurisdictions. Home values come from data collected and standardized by Estated, a property data company.

Notes: This table represents only the foreclosures with complete data (772 out of 1,217). Total taxes and fees due on homes refer to slightly different things in each county. In addition, some counties may be missing up to three months of data at the end of 2020. See Appendix 1 for clarification on total taxes and fees due on homes and date ranges.

Spotlight: Kanabec & Beltrami Counties

We did not originally plan to include Kanabec and Beltrami Counties in our study, as neither is among the top 10 most populous Minnesota counties. We ultimately decided to include them because, based on the Estated property data, these two counties appeared to take a disproportionate number of homes. Public records from Kanabec and Beltrami confirmed our suspicion that the counties frequently abuse their power to seize home equity from some of the most vulnerable residents in their communities.

Kanabec is a small county located in east central Minnesota with a median household income below the state median.19 Source: United States Census Bureau, Kanabec County, Minnesota: Quick Facts, distributed by the United States Census Bureau, https://www.census.gov/quickfacts/fact/table/kanabeccountyminnesota/PST045219. The Kanabec government seizes nearly seven times the average number of homes taken per thousand homes in all 12 counties we studied (see Table 3).

Beltrami is a medium-sized county in northern Minnesota that takes more than four times the average number of homes taken in all 12 counties. St. Louis, a large county, also takes a substantial number of homes compared to the other counties—around six times the average of all 12 counties.

It is unclear why Beltrami, Kanabec, and St. Louis Counties take such a large percentage of homes. It could be that economic or other local conditions have pushed more of their residents into financial crises.

It is also possible that the government’s profit incentive to foreclose could affect how it operates.20 Source: Research has shown that some localities across the United States rely heavily on fines and forfeitures for revenue. Dick Carpenter, Ricard Pochkhanawala, and Mindy Menjou, Municipal Fines and Fees: A 50-State Survey of State Laws (Arlington, VA: Institute for Justice), https://ij.org/report/fines-and-fees-home/; Sarah Calame and Aravind Boddupalli, Fines and Forfeitures and Racial Disparities (Washington, DC: Tax Policy Center, Urban Institute and Brookings Institution, August 14, 2020), https://www.taxpolicycenter.org/taxvox/fines-and-forfeitures-and-racial-disparities. The incentive may influence the quality and frequency of the counties’ notices to homeowners with overdue tax bills.21 Source: James J. Kelly, “Bringing Clarity to Title Clearing: Tax Foreclosure and Due Process in the Internet Age,” University of Cincinnati Law Review 77, no. 63 (2008–2009): 63–119. Or the county could be assessing properties excessively, making it difficult for residents to pay their property taxes.22 Source: Bernadette Atuahene and Christopher Berry, “Taxed Out: Illegal Property Tax Assessments and Epidemics of Tax Foreclosures in Detroit,” University of California Irvine Law Review 9, no. 4 (2019): 847–886. Financially devastated former homeowners robbed of their equity may be forced to rely more heavily on government assistance, potentially worsening cycles of poverty and government budgetary problems.

Sources: Data come from public records supplied by Minnesota jurisdictions, data collected and standardized by property data company Estated, and 2019 Census Annual Estimates of County Housing Units for Minnesota.

Note: Some counties may be missing up to three months of data at the end of 2020 (see Appendix 1).

Conclusion

Geraldine’s Fight Continues

While government has the power to collect unpaid taxes from delinquent homeowners, it is not entitled to take someone’s home and keep all the savings built up in that home. Tax foreclosure is a mechanism for collecting unpaid taxes. Once those taxes are covered by selling off the foreclosed home, the remaining value must be returned to the homeowner.

Geraldine has appealed her case to the United States Court of Appeals for the Eighth Circuit. If she ultimately prevails on her constitutional claims, Minnesota will be forced to reckon with its bad law.

Laws that allow governments to take vulnerable residents’ wealth beyond what is owed are immoral and violate individual rights. By allowing governments to profit from tax foreclosure, Minnesota’s statutes create a perverse incentive to make it more difficult for homeowners to avoid tax foreclosure in the first place.

It doesn’t need to be this way.

Local governments can enforce tax collection without abusing or stealing from unfortunate homeowners. In fact, not all Minnesota counties use tax foreclosure as a regular tool or in an abusive manner. Stearns County only took three homes from 2014 through 2020. But there is room for improvement even there.

Minnesota must stop home equity theft.

Besides meeting its moral and constitutional requirement to end home equity theft, Minnesota could improve its tax-foreclosure process in several ways:

  1. The State could provide a way to avoid taking more than the counties are owed by allowing for the garnishing of rents or auctioning off smaller portions of dividable properties. Such a system would help ensure that tax debts are paid with minimal intrusion on property rights.
  2. Failing that, the State could provide a way for the former homeowners to claim the surplus proceeds from a tax sale.
  3. Counties or the State could institute strong programs that help prevent tax foreclosure in the first place by working more closely with homeowners, social-service agencies, or charitable institutions to ensure homeowners stay in their homes.23 Source: Margaret Dewar, The Effects on Cities of “Best Practice” in Tax Foreclosure: Evidence from Detroit and Flint (Ann Arbor, MI: CLOSUP Working Paper Series, No. 2, 2009).
  4. The State should ensure that any property-tax-foreclosure sales are conducted with the utmost fairness and transparency so that the sale price better reflects the true value of the property—helping to return the full equity, minus tax debts, to the homeowner.24 Source: Research on more deliberate sales shows that communities are helped by reducing the likelihood of those properties being abandoned or returning to delinquency. Dewar, The Effects on Cities of “Best Practice” in Tax Foreclosure.

The Minnesota Legislature can also look to other states’ models to ensure that former homeowners can claim surplus proceeds and that the tax-foreclosure process is fair and reasonable.

For example, Missouri gives the previous owners of tax-sold properties three years to claim the surplus proceeds from the sale.25 Source: Mo. Rev. Stat. § 140.230 (2021). In New Mexico, the period is only two years, but statute requires the local government to make reasonable efforts to locate the former owner and pay them back.26 Source: N.M. Stat. Ann. § 7-38-71 (West 2021). Only if those efforts fail are the proceeds considered abandoned and distributed according to the state’s law for unclaimed property.

Minnesota must stop home equity theft. Geraldine has a right to the savings in her condo. Minnesota stole those savings from her.

Minnesotans should not have to wait for the courts to vindicate Geraldine’s rights and the rights of her fellow state residents. Instead, Minnesotans should demand that their state and local governments stop the injustice now by ending home equity theft.

Appendix 1

Data and Methodology

Data

To study the size and scope of home equity theft in Minnesota, we used the following data sources:

  1. Public records of tax-foreclosure sales received directly from 12 Minnesota counties: Anoka, Beltrami, Dakota, Hennepin, Kanabec, Olmsted, Ramsey, Scott, Stearns, St. Louis, Washington, and Wright
  2. Deed transactions collected by the property data company Estated27 Source: Estated, Bulk Data, MN (2,061,654 properties) (February 2021), sold by Estated, https://estated.com/.
  3. Estated’s estimated home valuations28 Source: Estated, Bulk Data, MN (2,061,654 properties) (February 2021), sold by Estated, https://estated.com/.
  4. Total-housing-unit data from the 2019 Census Annual Estimates of County Housing Units for Minnesota29 Source: United States Census Bureau, National, State, and County Housing Unit Totals: April 1, 2010 to July 1, 2019 (Minnesota), distributed by United States Census Bureau, https://www.census.gov/data/datasets/time-series/demo/popest/2010s-total-housing-units.html.

Data on tax-foreclosure sales are public records. However, public records are often stored in inconsistent formats between jurisdictions, which makes some data extraction and direct comparisons difficult. In addition, the smaller the entity or jurisdiction, the less likely the information is kept in a usable electronic format (or even kept at all).

To simplify data collection, we sent public records requests to the 10 largest counties in Minnesota by population. This decision allowed us to focus on fewer public records while covering nearly two-thirds of Minnesota’s population.30 Source: United States Census Bureau, Population, Population Change, and Estimated Components of Population Change: April 1, 2010 to July 1, 2019 (CO-EST2019-alldata), distributed by United States Census Bureau, https://www.census.gov/data/datasets/time-series/demo/popest/2010s-counties-total.html.

We also included Beltrami and Kanabec Counties because home equity theft appeared to be a problem in these counties based on the number of county property sales in the Estated property data. Together, the 12 counties we selected are home to two-thirds of Minnesota’s population.

We requested “a list of tax forfeited properties with parcel numbers, unpaid taxes, interest, fees, etc., and sale price for all properties that have gone through a tax forfeiture process between January 2014 and today.” And what we received varied. Table A.1 describes the variations in total taxes and fees due on homes and the date range for the data.

This is a significant sample of Minnesota counties, but it is not possible to establish statewide averages from it. The practices in the remaining jurisdictions could be similar, more abusive, or more reasonable. Nevertheless, a complete review of every tax foreclosure in the state is not necessary to demonstrate that significant home equity theft is occurring each year.

Methodology

The analyses focused on three measures:

Equity lost: The homeowner’s lost equity is the estimated value of the home from the Estated property data valuations minus the total taxes and fees due on the home from public records. We obtained complete data for 570 of the 1,217 homes. We calculated the average percentage of home equity taken in each county by averaging each homeowner’s percentage lost (lost equity divided by home value).

Equity kept: The equity kept by government is the price the government sold the home for minus the total taxes and fees due on the home. Sales prices come from public records or, where not provided, from matching deed transactions maintained by Estated. Both figures were available from these sources for 772 of the 1,217 homes.31 Source: The 772 homes that were used for the “equity taken” calculation include some but not all of the 570 homes used for the “equity lost” calculation.

Rate of homes taken: We measured the rate of homes taken by dividing the total number of homes foreclosed on and sold from 2014 through 2020 by the total number of homes in the county. Then, we multiplied the result by one thousand to calculate the number of homes taken per thousand homes.

Appendix 2

Minnesota’s Legal Process

The process that causes a homeowner to lose their home and all their equity in Minnesota is complex. This section explains each of the steps that eventually leads to home equity theft.

  1. The moment property taxes are due, they become a lien on the property.32 Source: Minn. Stat. Ann. § 272.31 (West 2021).
  2. Property taxes that are not paid during the year they are due become delinquent on January 1 of the following year.33 Source: Minn. Stat. Ann. § 279.02 (West 2021).
  3. By May, if taxes remain unpaid, the state takes title to the property. The original owner still has a right to “redeem” or reclaim the property’s title by paying the taxes and fees due on a home within three years (for most properties).34 Source: Minn. Stat. Ann. §§ 280.01, 280.04 (West 2021). The former property owner may redeem the property for the amount of the taxes, penalties, costs, and interest owed.35 Source: Minn. Stat. Ann. §§ 281.01–.02, 281.17 (West 2021).
  4. If the former owner does not redeem in time, the State of Minnesota takes the property and holds it in trust on behalf of the taxing county.36 Source: Minn. Stat. Ann. § 281.18 (West 2021). At this stage, all the taxes and penalties owed on the property are cancelled. The former owner may still apply to the county to repurchase the property for the amount owed at the time of forfeiture, but the county is not obligated to grant the application.37 Source: Minn. Stat. Ann. § 282.241 (West 2021).
  5. The county then holds a public meeting to determine how to dispose of its tax-forfeited properties.38 Source: Minn. Stat. Ann. § 282.01 (West 2021). It can decide to keep the property for public use or sell it to private parties.39 Source: Minn. Stat. Ann. § 282.01 (West 2021). If it chooses to sell the property to private parties, it must set a minimum purchase price at the fair-market-appraisal value.40 Source: Minn. Stat. Ann. § 282.01(3)–(4) (West 2021). If the county transfers the property to a public entity for conservation or another public purpose, it may be sold to that entity for less than the appraised value or even transferred at no cost.
  6. There is no avenue for the former property owner to claim any surplus proceeds—those above what the owner previously owed—after the county sells the property.
  7. Because the taxes were cancelled upon forfeiture, proceeds from a tax sale do not go toward covering the unpaid property taxes. Instead, they are distributed in the following order:41 Source: Minn. Stat. Ann. § 282.08 (West 2021).
    • Expenses incurred for any municipal improvements and environmental cleanup that increased the property’s value
    • Special assessments
    • Optional designation of a portion to public fund recreation
    • The remainder is divided as follows:
      • 40% to the county
      • 40% to the school district in which the property sits
      • 20% to the town in which the property sits

Notes

1 Geraldine owed just $2,311 in property taxes, but her total tax bill was more than six times that amount. That’s because Minnesota law allows high interest rates, penalties, and large administrative fees that capture all supplemental costs associated with the collection and foreclosure of the property. See Minn. Stat. §§ 279.01 subd.1, 279.03 subd. 1a, 279.092 (adding penalties of 4%–8% within a few weeks, and 1% per month, interest of 10%–28%, and a broad “service fee”).

2 Estated, Bulk Data, MN (2,061,654 properties) (February 2021), sold by Estated, https://estated.com/

3 See, e.g., Minn. Stat. § 580.10 (explaining that the surplus proceeds from a mortgage foreclosure after paying debts are returned to a former owner).

4 The tax-foreclosure process varies widely between states. We’ve identified 12 states that don’t have a process to return the surplus. These home equity theft states are Alabama, Arizona, Colorado, Illinois, Maine, Massachusetts, Minnesota, Nebraska, New Jersey, New York, Oregon, and Wisconsin. Though a court case claims that New York has a process to return the surplus, it’s not clear that the process is used or is effective. Several other states have loopholes that allow for the taking of surplus in some circumstances.

5 Pacific Legal Foundation, “Ending Home Equity Theft,” https://pacificlegalnew.mbndigital-staging.com/home-equity-theft/

6 United States Census Bureau, Population, Population Change, and Estimated Components of Population Change: April 1, 2010 to July 1, 2019 (CO-EST2019-alldata), distributed by United States Census Bureau, https://www.census.gov/data/datasets/time-series/demo/popest/2010s-counties-total.html

7 Tyler also raised claims that the county violated the state and federal protections against excessive fines and the guarantee of substantive due process.

8 Tyler v. Hennepin Cty., 505 F. Supp. 3d 879, 890-91, 893 (D. Minn. 2020).

9 See Farnham v. Jones, 19 N.W. 83, 85 (Minn. 1884).

10 See Farnham, 19 N.W. at 85.

11 Tyler, 505 F. Supp. 3d at 894.

12 Minn. Stat. Ann. § 580.09–.10 (West 2021).

13 For example, the 26th Clause provided 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, when someone died owing any form of taxation to the king, the king’s officials “were in the habit of seizing everything they could find on his manors, 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 (2d ed. 1914), 322–23; 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).

14 Rafaeli, LLC v. Oakland County, 952 N.W.2d 434, 470 (Mich. 2020).

15 N.D. Century Code 57-28-01, et seq.

16 S.B. 253, 66th Legislature (MT 2019), https://leg.mt.gov/bills/2019/billpdf/SB0253.pdf

17 Sean P. Murphy, “In Mass., private companies can make a killing legally, if you can’t keep up with your property taxes,” Boston Globe, January 18, 2021, https://www.bostonglobe.com/2021/01/18/business/mass-private-companies-can-make-killing-legally-if-you-cant-keep-up-with-your-property-taxes/

18 Government entities typically do not have the resources to put tax-foreclosed properties up on the real estate market for a competitive sale process, at least not without contracting out the process to other professionals.

19 United States Census Bureau, Kanabec County, Minnesota: Quick Facts, distributed by the United States Census Bureau, https://www.census.gov/quickfacts/fact/table/kanabeccountyminnesota/PST045219

20 Research has shown that some localities across the United States rely heavily on fines and forfeitures for revenue. Dick Carpenter, Ricard Pochkhanawala, and Mindy Menjou, Municipal Fines and Fees: A 50-State Survey of State Laws (Arlington, VA: Institute for Justice), https://ij.org/report/fines-and-fees-home/; Sarah Calame and Aravind Boddupalli, Fines and Forfeitures and Racial Disparities (Washington, DC: Tax Policy Center, Urban Institute and Brookings Institution, August 14, 2020), https://www.taxpolicycenter.org/taxvox/fines-and-forfeitures-and-racial-disparities

21 James J. Kelly, “Bringing Clarity to Title Clearing: Tax Foreclosure and Due Process in the Internet Age,” University of Cincinnati Law Review 77, no. 63 (2008–2009): 63–119.

22 Bernadette Atuahene and Christopher Berry, “Taxed Out: Illegal Property Tax Assessments and Epidemics of Tax Foreclosures in Detroit,” University of California Irvine Law Review 9, no. 4 (2019): 847–886.

23 Margaret Dewar, The Effects on Cities of “Best Practice” in Tax Foreclosure: Evidence from Detroit and Flint (Ann Arbor, MI: CLOSUP Working Paper Series, No. 2, 2009).

24 Research on more deliberate sales shows that communities are helped by reducing the likelihood of those properties being abandoned or returning to delinquency. Dewar, The Effects on Cities of “Best Practice” in Tax Foreclosure.

25 Mo. Rev. Stat. § 140.230 (2021).

26 N.M. Stat. Ann. § 7-38-71 (West 2021).

27 Estated, Bulk Data, MN (2,061,654 properties) (February 2021), sold by Estated, https://estated.com/

28 Estated, Bulk Data, MN (2,061,654 properties) (February 2021), sold by Estated, https://estated.com/

29 United States Census Bureau, National, State, and County Housing Unit Totals: April 1, 2010 to July 1, 2019 (Minnesota), distributed by United States Census Bureau, https://www.census.gov/data/datasets/time-series/demo/popest/2010s-total-housing-units.html

30 United States Census Bureau, Population, Population Change, and Estimated Components of Population Change: April 1, 2010 to July 1, 2019 (CO-EST2019-alldata), distributed by United States Census Bureau, https://www.census.gov/data/datasets/time-series/demo/popest/2010s-counties-total.html

31 The 772 homes that were used for the “equity taken” calculation include some but not all of the 570 homes used for the “equity lost” calculation.

32 Minn. Stat. Ann. § 272.31 (West 2021).

33 Minn. Stat. Ann. § 279.02 (West 2021).

34 Minn. Stat. Ann. §§ 280.01, 280.04 (West 2021).

35 Minn. Stat. Ann. §§ 281.01–.02, 281.17 (West 2021).

36 Minn. Stat. Ann. § 281.18 (West 2021).

37 Minn. Stat. Ann. § 282.241 (West 2021).

38 Minn. Stat. Ann. § 282.01 (West 2021).

39 Minn. Stat. Ann. § 282.01 (West 2021).

40 Minn. Stat. Ann. § 282.01(3)–(4) (West 2021).

41 Minn. Stat. Ann. § 282.08 (West 2021).

About the Authors

Christina M. Martin

Carol Park

Carol Park is PLF’s strategic research analyst. She conducts social science research to help advance PLF’s mission. Before joining PLF, she researched property rights and fiscal reform at the Independent Institute and the Maryland Public Policy Institute. She earned a master’s degree in economics from Yale University and a master’s in public administration from Columbia University.

Daniel J. Dew

David J. Deerson

David J. Deerson is an attorney with Pacific Legal Foundation focusing on property rights. He represents individuals and families facing home equity theft and other unconstitutional intrusions on property. David earned his J.D. from Vanderbilt University Law School.

Acknowledgements

The authors thank Angela C. Erickson for help with data analysis. We also thank Alexandria Tatem for help with data collection. Finally, we thank our peer reviewers, including Richard Epstein and Dan Alban.

Pacific Legal Foundation is a national nonprofit legal organization that defends Americans’ liberties when threatened by government overreach and abuse. Each year, PLF represents hundreds of Americans, free of charge, who seek to improve their lives but are thwarted by government. We give them their day in court to vindicate their rights and set a lasting precedent to protect everyone else. Started in 1973 in California, PLF now brings cases nationwide, scoring precedent-setting victories for our clients, with an unmatched track record at the United States Supreme Court.