U.S. Supreme Court Issues Decision on Use of Excess Proceeds from Sale of Tax-Acquired Property

By Zack Brandwein, Mary Costigan, and N. Joel Moser 

On May 25, the U.S. Supreme Court ruled on a case involving the sale of property acquired by Hennepin County, Minnesota after the owner failed to pay her property taxes. Similar to Maine, Minnesota permits local governments to sell tax-acquired property to satisfy delinquent property taxes and to keep any surplus proceeds.

In a decision that has consequences in Maine, the Supreme Court ruled in Tyler v. Hennepin County that the County violated the Takings Clause of the Eighth Amendment to the U.S. Constitution when it sold the owner’s condominium for $40,000 to satisfy $15,000 in delinquent taxes and kept the $25,000 surplus for itself. In short, the Court held that a government cannot take more property than it is owed, and excess proceeds from the sale of tax-acquired property must be returned to the taxpayer.

Municipalities in Maine should be aware of this recent decision and its impact to Maine’s tax foreclosure process. In particular, municipalities should carefully consider (1) whether to waive automatic foreclosure, (2) how to keep sufficient records to permit recovery for costs associated with tax-acquired property, and (3) revisit when it is prudent to sell tax-acquired property. In the event a municipality decides to sell tax-acquired property, consulting with experienced counsel is the best way to ensure constitutional compliance in this changing landscape.