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U.S. Supreme Court Invalidates Minnesota Tax Foreclosure Scheme

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Ruling could impact Worcester homeowner’s suit against city and private tax lien buyer

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BOSTON, May 26, 2023 – The United States Supreme Court today struck down Minnesota’s tax foreclosure scheme, ruling that a Minnesota homeowner who lost her home to a tax foreclosure was entitled to the surplus from the home’s sale.

In Tyler v. Hennepin County, Geraldine Tyler lost her home valued at $40,000 because she had not paid $15,000 in property taxes.

“The Court sent a clear message today, ruling unanimously that any surplus beyond the tax debt should be returned to the homeowner,” said Pioneer Public Interest Law Center President Frank Bailey.

The Supreme Court’s ruling could affect a Massachusetts case filed in U.S. Bankruptcy Court earlier this month.  There, homeowner Carmen Rodriguez sued the City of Worcester and a tax lien buyer, Tallage Davis, LLC, seeking to invalidate a state statute that allows municipalities to confiscate people’s homes — including all the equity built up over many years — when they fall behind on their real estate taxes.  Ms. Rodriguez is represented by the Pioneer Public Interest Law Center, Morgan, Lewis & Bockius LLP and Greater Boston Legal Services.

Ms. Rodriguez has owned her Worcester home for decades. She raised her family there and paid the mortgage in full.  When she became ill and had to leave her job at the TJ Maxx warehouse where she worked for 37 years, she fell behind in her city real estate taxes, but she was not terribly worried because she owed only about $2,600 and her house was worth $200,000 to $300,000.

Worcester, however, quickly moved ahead with a little-known practice of selling its right to foreclose on Ms. Rodriguez’s home to Tallage Davis, LLC, a Boston-based tax title buyer.  Tallage soon took title to the house and commenced eviction proceedings against Carmen and her son, seeking to remove her from the house during the 2022 holidays.

Ms. Rodriguez continued to make payments to Worcester even after Tallage filed a tax foreclosure, as she was unaware that the company was trying to foreclose on her home.

Ms. Rodriguez is not alone in her efforts to invalidate what many have called the “equity theft process.”  Approximately 13 states have laws that allow equity theft.

In the U.S. Supreme Court case, Geraldine Tyler, an elderly Minnesota woman, lost her home under that state’s statute, which tracks the Massachusetts law.  Like Ms. Rodriguez, Tyler argued that statutes such as these violate state and federal constitutional provisions that prohibit the taking of property without just compensation and the charging of unreasonable fines.  Today’s decision found that Minnesota violated the U.S. Constitution when it took the entire value of her home for the taxes.

“I appreciate that the U.S. Supreme Court ruled that homeowner’s have rights and they should not lose the entire value of their home for a small amount of taxes owed,” Rodriguez said.  “I am fortunate to have great team of lawyers in my corner to show how unjust this is.  Hopefully it will never happen to another homeowner in Massachusetts.”

Carmen Rodriguez was preparing to move out of her home prior to accessing legal assistance.

“The process used by Worcester does not even benefit the city’s citizens, because while Worcester received less than $4,000, Tallage took the deed to Carmen’s home worth about $300,000,” said Todd Kaplan of Greater Boston Legal Services.  “This process makes no economic sense for Massachusetts communities; it only enriches people like those who own Tallage.”

Keeping State Taxation Powers Within the Law

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U.S. Auto Parts Network, Inc. v. Commissioner of Revenue

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In December 2022, the Massachusetts Supreme Judicial Court ruled in favor of U.S. Auto Parts Network, Inc., in a case that involving taxation of online sales. Pioneer Public Interest Law Center — then known as PioneerLegal — had submitted an amicus brief in the case.

In 2018, in the Wayfair case, the U.S. Supreme Court ruled that a state could, consistent with the Commerce Clause, require a company that engages in online retail sales to file a sales tax return and to collect the tax, provided the company has a “substantial nexus” with the state, even if it has no physical presence in the state. The Court  left it to the states to define “substantial nexus.” The Massachusetts Department of Revenue (DOR) then sent a tax bill to U.S. Auto Parts, an out-of-state retailer, for a period before the Wayfair decision.

Pioneer’s amicus brief argued that the application of Wayfair retroactively was impermissible, and the state’s SJC agreed. Importantly, the ruling in this case will apply in other instances where the DOR seeks to expand tax liabilities retroactively, an invidious technique that has been seen in other contexts.

Securing Religious Liberty Rights in Maine

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Pioneer Law’s role in winning the Carson v. Makin case at the Supreme Court

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On June 21, 2022, the U.S. Supreme Court ruled in Carson v. Makin that a Maine school tuition law that excluded religious schools was unconstitutional. Pioneer Public Interest Law Center, then known as PioneerLegal, had filed an amicus curiae brief urging the Court to strike down the Maine law.

In the Court’s 2020 ruling in Espinoza v. Montana Department of Revenue, Chief Justice John Roberts wrote that “A state need not subsidize private education.  But once a state decides to do so, it cannot disqualify some private schools solely because they are religious.”

For over a century, until the early 1980s, religiously affiliated schools were included in the Maine school tuitioning program, under which communities that don’t have their own schools can either contract with a school or allow parents to use the per-pupil spending allotment to attend the public or private school of their choice. The Maine state legislature, driven by the Senate chair of the education committee, re-codified the program in 1982 to prohibit parents and students from using the law to access religious schools, as was originally intended in 1873.

Pioneer Institute Executive Director Jim Stergios noted that Maine law allowed parents to access the public or private education that best suits their children except if the school was religiously affiliated — a practice that, in light of the Espinoza decision, was clearly counter to the Constitution.

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PioneerLegal is a non-partisan, public interest law firm that defends and promotes educational options, accountable government and economic opportunity across the Northeast. PioneerLegal achieves its mission through legal research, amicus briefs, and litigation.

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