Tyler v. Hennepin County and the surplus equity market
In 2023 a unanimous Supreme Court held that a government may not keep more than it is owed from a tax foreclosure sale.
Hennepin County, Minnesota, seized a condominium over roughly $15,000 in unpaid taxes, penalties and interest, sold it for $40,000 and kept the entire proceeds. The Court held that keeping the excess was a taking of property under the Fifth Amendment. The surplus belonged to the owner.
The case concerned tax foreclosure. Its reasoning is plain: the surplus is the owner’s property.
What changed
Many states that had allowed governments to retain the full proceeds of tax foreclosure sales have revised their procedures, creating new processes for former owners to claim the surplus. More surplus is now held for former owners to claim.
What it means for the asset
The principle at the center of the asset class has been affirmed. What remains is operational: finding the owner, documenting the claim and moving it through each state’s procedure. That is work an institution does better than a cottage industry.