Keeping Excess Profit from Sale of Tax-Deeded Property Violates the Takings Clause of the Fifth Amendment; a 10% Assessed Penalty Imposed under RSA 80:90, I (f), May be an Excessive Fine under the Eighth Amendment of the US Constitution

Tyler v. Hennepin County, Minnesota, et al.
United States Supreme Court Case No. 22-166
Thursday, May 25, 2023

Minnesota resident Geraldine Tyler moved into a senior facility in 2010 and did not pay taxes on her condominium after she left; by 2015 the property had accrued approximately $15,000 in unpaid real estate taxes, interest, and penalties. In accordance with Minnesota law regarding forfeitures, Hennepin County took possession of the condominium and sold it for $40,000. This satisfied Tyler’s $15,000 debt and made an excess profit of $25,000, which Hennepin County retained Following this, Tyler filed suit claiming the county’s actions violated the Takings Clause of the Fifth Amendment and the Excessive Fines Clause of the Eighth Amendment. This action was initially dismissed by the District Court for failure to state a claim; and the Eighth Circuit affirmed the dismissal arguing that Tyler had forfeited her property interest in the condominium and thus it was not a taking and that the seizure and sale of her home was executed  to remedy her unpaid taxes, not to penalize her for failure to pay. The US Supreme Court reversed.

In his opinion for a unanimous Court, Chief Justice Roberts argued that property taxes and associated late fees and interests, along with seizure and sale of delinquent properties, are not takings inherently under the Takings Clause.  However, a tax forfeiture process that results in a taxpayer losing her $40,000 home to the State to fulfill a $15,000 tax debt, with the State retaining the $25,000 surplus is a taking of private property without compensation in violation of the Fifth Amendment. This decision aligns with the NH Supreme Court’s ruling in Polonsky v. Town of Bedford, 173 N.H. 226 (2020) that under the New Hampshire Constitution municipalities are not entitled to keep any of the “excess proceeds” from the sale of tax deeded property. 

However, another question posed in the Hennepin County decision but not answered is whether the retention of excess proceeds from sale of tax deeded property also constitutes a violation of the Excessive Fines clause of the Eighth Amendment.  As noted by Justice Gorsuch in a concurring opinion, the retention of excess proceeds from a tax sale might also be considered a violation of the Excessive Fines clause, citing to Austin v. United States, 509 U.S. 602 (1993).  In that regard NH municipalities should consult with their regular legal counsel and decide whether to impose the 10% assessed value penalty under RSA 80:90, I (f).  That provision states that when a property owner redeems property from tax deed the owner (except if the property was the principal residence of the owner) shall pay “[a]n additional penalty equal in amount to 10 percent of the assessed value of the property as of the date of the tax deed, adjusted by the equalization ratio for the year of the assessment.”  In those circumstances where the amount of that penalty is grossly disproportionate to the outstanding tax debt and other interest and fees due, that penalty might be construed to be an Excessive Fine contrary to the Eight Amendment.