On May 25, 2023, the U.S. Supreme Court unanimously ruled that if a state seizes and sells real property to recoup unpaid taxes and then retains more proceeds than the taxes which were owed, this action violates the Takings Clause of the Fifth Amendment.

This decision resolves a split in the Circuits and reverses a holding from the Eighth Circuit. Now, when a municipality forecloses on real estate and receives more than the taxes which are due, the excess must be remitted to the taxpayer.

In this case, a 94-year-old woman failed to pay her taxes when she moved from her home to an assisted living facility. At the time, she owed approximately $15,000 in taxes ($2,000 in actual taxes and $13,000 in interest and penalty). The property sold for $40,000 and the excess over the taxes due and owing was not remitted to the taxpayer. The basis for the state’s keeping the excess funds was supposedly grounded in state (Minnesota) law.

In his Opinion, Chief Justice Roberts opined that “history and precedent” said otherwise. He further stated that the fact that the government cannot take more than they are owed traces back to “Runnymede in 1215” as a result of King John precluding the taking of such excess. This decision was also grounded in the fact that the Takings Clause was enacted to preclude the government from forcing people alone to “bear public burdens, which, in all fairness and justice would be borne by the public as a whole.” Chief Justice Roberts reversed the Eighth Circuit, stating that the homeowner “plausibly” alleged a taking under the Fifth Amendment since the state made “an exception for itself, and only for taxes on real property”.

The state may not extinguish a property interest that it recognizes everywhere else to avoid paying just compensation when it is the one doing the taking. Further, Chief Justice Roberts stated that “the taxpayer must render unto Caesar what is Caesar’s, but no more”.

Justices Gorsuch and Jackson authored a concurring opinion that discusses a separate basis for the ruling based upon the Eighth Amendment’s prohibition against excessive fines.

To discuss the issues raised here or any other issues involving creditors’ rights and bankruptcy, please contact Leslie Beth Baskin, Esquire at 215-241-8926 or at lbaskin@sgrvlaw.com.