In May of last year, the United States Supreme Court ruled that home equity theft — the practice of governments taking not just what is owed, but the entire property when they collect a property tax debt — is unconstitutional. Yet almost a full year later, several states have failed to change their laws to comply with that decision.
California is one of those states — and by continuing to allow local governments to seize property without compensation, the state will likely face serious monetary liabilities for damages in future lawsuits from wronged property owners. We urge state legislators to move swiftly to end home equity theft in the Golden State once and for all.
Under normal circumstances, when a homeowner fails to pay property taxes, the government can seize the property and sell it off at public auction to satisfy the tax debt. Once that debt is paid, any surplus funds from the sale, less interest and penalties, should be returned to the property owner. However, in many states, local governments keep the entire sum, leaving the homeowner with nothing.
Unsurprisingly, the victims of these shady tax foreclosure laws are all too often citizens who fell behind on their taxes because of health issues, job losses or other unforeseen events — vulnerable people with limited means to fight back. In many cases, governments seize homes from aging seniors in cognitive decline, or individuals with mental disabilities, often based on relatively small amounts of tax debt, leaving the homeowner destitute.
And the losses to homeowners are considerable: a nationwide study by the Pacific Legal Foundation found that from 2014-2021, home equity seizures led to at least 8,600 lost homes and more than $780 million in lost life savings.
The Supreme Court’s 2023 decision in the case of Tyler v. Hennepin County was resoundingly clear: in a unanimous 9-0 decision, the court ruled that taking more than is owed to satisfy a property tax debt violates the Takings Clause of the Constitution’s Fifth Amendment. In response to that landmark decision, several states moved to reform their laws to better protect property owners. Yet even today, more than a dozen states continue to allow some form of home equity theft.
California is not the worst offender when it comes to taking home equity in tax foreclosures. However, California law continues to include a significant loophole: under certain circumstances, a local government can hand a property over to a non-profit or government agency for a public purpose. In doing so, they can skip the auction and sell the property for only the tax debt, leaving the original owner with nothing.
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The good news is that state legislators have an opportunity to close that loophole to protect property owners against home equity theft. SB 964, a legislative proposal from Sen. Kelly Seyarto, would require the Board of Equalization to assess the value of properties before counties sell them to non-profits or other government agencies, helping ensure they are sold at fair market value, even if they don’t go to auction. This reasonable reform would help prevent the government from taking more than is owed and give California counties the ability to comply with the Supreme Court’s ruling.
Without question, homeowners should pay their property taxes, and those who fail to meet their tax obligations should expect to face consequences. But as Chief Justice John Roberts noted in the Tyler decision, “A taxpayer who loses her $40,000 house to the State to fulfill a $15,000 tax debt has made a far greater contribution to the public fisc than she owed. The taxpayer must render unto Caesar what is Caesar’s, but no more.” We’ve seen steady progress as half a dozen states have changed their laws to reflect that fundamental principle of fairness. California needs to do the same to protect property owners against abusive tax foreclosures.
Jon Coupal is the President of Howard Jarvis Taxpayers Association. Jim Manley is state legal policy deputy director at Pacific Legal Foundation, a public interest law firm that represented the homeowner in Tyler v. Hennepin County.
