NYC property seizures imperiled by Supreme Court decision

A 94-year-old’s fight in Minnesota may change a property seizure program in New York City. 

The U.S. Supreme Court on Thursday ruled unanimously that Hennepin County wrongfully pocketed the excess proceeds from the sale of Geraldine Tyler’s condo unit. Tyler owed the county $15,000, a sum that ballooned from $2,311 in unpaid property taxes.

To settle the debt, the county sold her condo unit for $40,000 — and kept all of it. The court agreed that this violated the Fifth Amendment’s takings clause, reversing the Eighth Circuit’s decision in the county’s favor.

“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,” Chief Justice John Roberts wrote. “The taxpayer must render unto Caesar what is Caesar’s, but no more.”

The court found that Minnesota law does not provide property owners sufficient opportunity to recoup any surplus when their property is seized by the government to satisfy a debt. Roberts dismissed the county’s argument that Tyler could have sold her property to pay her debt, saying that does not qualify as an opportunity to claim equity.

New York City officials surely took notice.

In the city’s lien sale, debt from overdue taxes, water bills and the like is sold to an investment trust that can foreclose on the property if it cannot collect what is owed. Property owners have a chance to recoup any surplus in state court, but sometimes don’t.

In a 1956 decision, the Supreme Court ruled in favor of New York City over a property owner who waited too long to claim excess proceeds. New York and other states have pointed to that decision to justify their tax enforcement programs.

But the city’s third party transfer program functions differently. The city seizes distressed properties from indebted owners and transfers them to developers, who provide tenants with rent-stabilized leases and agree to rent the apartments out at below market value.

That program is the subject of a 2019 class-action lawsuit. Brooklyn homeowners allege, among other things, that their properties were wrongfully seized. City officials have argued that owners are given ample notice and opportunity to pay their debt and can even “demand additional time to sell property and pay the liens from proceeds, retaining surplus, if any.”

Yolande Nicholson, one of the attorneys representing the property owners in the suit, said Thursday’s Supreme Court decision supports the claim that her clients were “subject to an unconstitutional action, having their private property illegally snatched by their own city government.”

“The US Supreme Court now makes it very clear! The City’s TPT Program is fundamentally unconstitutional!” she said in a statement.

“For African-American families like Ms. Tyler especially, the Supreme Court’s decision heralds that their property rights matter to the same extent as it does for Americans who were afforded those rights from the Declaration of Independence,” she said.

A representative for the city’s Department of Housing Preservation and Development indicated that the agency was reviewing Thursday’s decision.

The ruling could have implications beyond the third party transfer program. According to the Pacific Legal Foundation, at least 12 states have laws that allow localities to keep the surplus value from seized property.

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