How Will the Recent Tyler v. Hennepin County, Minn. Decision Affect Ohio’s Land Banking?

By Jeffry D. Harris

As widely expected by land banking advocates, the U.S. Supreme Court handed down an opinion steeped in the language of “home equity theft” to find a taking under the federal Constitution in a Minnesota case that screamed for righteous indignation^[1]. The Court’s decision in Tyler v. Hennepin County, Minnesota, et al.^[2] placed a period at the end of the sentence in a series of cases^[3] brought by the conservative Pacific Legal Foundation that attacked various states’ tax foreclosure processes as amounting to “takings” under the Constitution.

We cheekily noted one such lower court’s opinion citing back to Magna Carta, only to see the same position laid down here by the Supreme Court in its unanimous opinion written by Chief Justice Roberts.

Although the Court recognized Hennepin County’s authority to sell Tyler’s home to recover unpaid property taxes, the County “could not use the toehold of the tax debt to confiscate more property than was due” and Tyler, therefore, was entitled to just compensation (here, the $25,000 in excess proceeds from the sale of her condominium).^[4] The Tyler Court highlighted Minnesota’s position as a “minority rule” in contrast to the 36 states and federal government requiring that excess value (i.e., “overplus”) in one’s property be returned after satisfaction of taxes and penalties due.^[5] And the Court took issue – as did the Sixth Circuit in Hall with Michigan’s “strict foreclosure” system – with the absolute title transferred to the County, whereby the taxpayer had no opportunity to recover any excess value. (Interestingly, Minnesota’s forfeiture law allows a delinquent taxpayer to remain in her home up until the government sells it to cover outstanding taxes and penalties.^[6])

How does last week’s U.S. Supreme Court decision square with Ohio’s tax foreclosure process to directly transfer nonproductive property to county land banks?

We know Ohio’s highest court has upheld this state’s tax foreclosure process in the face of such a taking argument. The Ohio Supreme Court’s recent decision in State ex rel. US Bank Trust, N.A. v. Cuyahoga County^[7] held that direct transfers of tax-foreclosed properties did not constitute takings without just compensation under the Fifth Amendment of the U.S. Constitution. Why? Because Ohio’s statutory tax foreclosure process – unlike Minnesota’s – afforded adequate remedies to avoid a takings claim: tax-deadbeat owners and their creditors must receive due notice of pending foreclosures, who then can redeem their properties by paying amounts due on tax liens, or transfer tax foreclosure cases to different venues, or timely appeal tax foreclosure adjudications.

But we also know the Ohio Supreme Court is not the final say in this matter. Rather, under legal preemption theory, the U.S. Supreme Court is the final arbiter in conflicts between federal and state regulations (“[u]nder this doctrine, state laws interfering with, or contrary to, federal law are preempted”^[8]).

To gauge the impact in Ohio by this decision of the highest federal court, we pinpoint two favorable lines of discussion raised in Tyler; it could be that Ohio’s process for conducting tax foreclosures withstands the level of scrutiny having doomed Minnesota’s own process.

First, this Court viewed the statutory process set forth in New York City to foreclose on property for unpaid water bills, upheld by the same court in Nelson v. City of New York (1956), as providing a specific procedure to recover surplus value. That is, the Nelson Court did not find a taking because New York City “simply defin[ed] the process through which the owner could claim the surplus”^[9]. Compare this discussion point with the Ohio Supreme Court’s recent holding in State ex rel. US Bank Trust, N.A. v. Cuyahoga County, whereby sufficient due process protections were found in Ohio’s statutory process to defeat the takings argument raised in that case.

Second, the Court discussed the concept of abandonment, raised by Minnesota in its defense, as having to represent no use of subject property in order to relinquish one’s property interests; Minnesota lost its abandonment argument because the Tyler Court viewed a failure to pay property taxes as itself insufficient to demonstrate abandonment of the seized property. Compare this discussion of abandonment with Ohio’s statutory definition of nonproductive land in tax foreclosures, to which officials must aver certain conditions suggesting no occupancy or current use.^[10]

Even with those two points in Tyler suggesting a more favorable outcome in the federal courts for Ohio’s tax foreclosure process, nevertheless, we see two measures winding through the current Ohio General Assembly to forestall future takings arguments under the U.S. Constitution’s Fifth Amendment. House Bill 85 was introduced in February 2023 to (i) require that advertisements for the sale of tax-foreclosed property tell prospective bidders that land banks have right of first refusal to match the highest bid offered; (ii) provide an alternative way to send abandoned property to land banks – via sale to such land banks without advertisement, so long as the amount they pay is the greater of the amount of delinquent taxes or the property’s fair market property^[11]; and (iii) provide land banks with the right of first refusal in any sheriff’s sale of tax-foreclosed abandoned property, whereby the land bank is empowered to match, within 30 days, the highest bidder at such sale. And House Bill 153 was introduced in April 2023 to tweak Ohio’s existing tax foreclosure process to limit the use of expedited foreclosures in Boards of Revision to only abandoned land whose fair market value is less than the taxes, penalties, and interest due and outstanding (i.e., having no pent-up equity).

[1] Petitioner Geraldine Tyler is a 94-year-old Minnesota woman who moved into senior housing and whose one-bedroom condominium home was taken by Hennepin County after she failed to pay $15,000 in property taxes and other fees due. The county sold her home for $40,000 in 2016, keeping the excess $25,000 in sale proceeds.

[2] 2023 WL 3632754, Slip Opinion 22-166, decided on May 25, 2023.

[3] Locally, in the federal Sixth Circuit, we witnessed sequential lower courts’ holdings in an Ohio case, Harrison v. Montgomery County, Ohio, (997 F.3d 643, decided May 11, 2021) and a Michigan case, Hall v. Meisner (51 F.4th 185, decided Oct. 13, 2022) that allowed an owner of abandoned land to raise a federal “takings” argument under the Fifth Amendment of the U.S. Constitution (once a property is deemed abandoned and titled to a county land bank) and declared aspects of another state’s tax foreclosure process amounted to a “taking” under the federal Constitution, respectively.

[4] Supra, note 2, at page 6.

[5] Id. at pages 7, 9.

[6] Id. at pages 14.

[7] 2023 WL 2762497, 2023-Ohio-1063, decided on April 4, 2023.

[8] In re Marshall v. PNC Bank, N.A., 491 B.R. 217, 226 at footnote 5 (Bankr. S.D. Ohio 2012).

[9] Supra, note 2, at page 11.

[10] Ohio Revised Code Section 5722.01(F):

“any parcel of delinquent vacant land with respect to which a foreclosure and forfeiture proceeding pursuant to section 5721.14 of the Revised Code has been instituted; and any parcel of delinquent land with respect to which a foreclosure proceeding pursuant to section 323.25, sections 323.65 to 323.79, or division (A) or (B) of section 5721.18 of the Revised Code has been instituted and to which one of the following criteria applies: (1) There are no buildings or structures located on the land; (2) The land is abandoned land as defined in section 323.65 of the Revised Code; (3) None of the buildings or other structures located on the parcel are in the occupancy of any person, and the township or municipal corporation within whose boundaries the parcel is situated has instituted proceedings under section 505.86 or 715.26 of the Revised Code, or Section 3 of Article XVIII, Ohio Constitution, for the removal or demolition of such buildings or other structures by the township or municipal corporation because of their insecure, unsafe, or structurally defective condition; (4) None of the buildings or structures located on the parcel are in the occupancy of any person at the time the foreclosure proceeding is initiated, and the municipal corporation, county, township, or county land reutilization corporation determines that the parcel is eligible for acquisition through a land reutilization program” [emphasis added].

[11] Note those with interests in the property may claim any excess proceeds from such sale (i.e., the potential taking of home equity), and if nobody claims any interests in the property, the land bank may buy the property for only the amount of the delinquent taxes due.

This is for informational purposes only. It is not intended to be legal advice and does not create or imply an attorney-client relationship.