A year ago, the U.S. Supreme Court ruled that a Minnesota woman who lost her home in a tax foreclosure sale was entitled to the proceeds left over after the tax debt was satisfied. “The taxpayer must render unto Caesar what is Caesar’s, but no more,” Chief Justice John Roberts wrote for the unanimous court.
The decision effectively ended the longstanding practice in 14 states, including New York, of governments seizing properties for unpaid taxes, selling them at auction and keeping all the proceeds. The court said that violated the Constitution’s Fifth Amendment, prohibiting government from taking private property without just compensation.
New York state and Onondaga County recently changed their laws to comply with the court’s decision. But county governments aren’t lining up to return surplus money to property owners — many of whom don’t even know they are entitled to it.
Now, word is spreading. Property owners are filing dozens of lawsuits across the state, including some in Onondaga County, to recoup the equity the government took from them, staff writers Michelle Breidenbach and Tim Knauss reported. The reporters created a searchable database of all properties auctioned by Onondaga County in the past four years and the auction price, which could tip off property owners who may be owed money.
Many homes are worth less than the tax owed on them. But there are some outrageous exceptions — like the house in Skaneateles sold at auction for $307,760 to satisfy a tax debt of $16,000, or the Manlius home sold for $207,000 for $33,414 in unpaid taxes.
Onondaga County never bothered to keep track of surpluses generated by tax foreclosure sales because it never intended to return the money to the property owners. It has a very good reason to keep track now — but has not taken steps to do the math and inform property owners who may be owed surplus money. That would be the right thing to do. Instead, it’s up to property owners to figure it out.
Lawyers are only too eager to help them. Counties (including this one) are being sued to pay up. Defending these lawsuits — which would appear to be indefensible under the Supreme Court’s ruling — will be costly.
Some litigation seems inevitable. The courts will have to decide how far back claims can be made, and whether the “fire sale” price of a property at a tax auction represents fair market value in today’s red-hot market.
While all of this is sorted out, the least Onondaga County could do is to search its records and notify property owners who may be owed money.
If county government showed a tiny bit of curiosity about why property owners become delinquent, it might even prevent some foreclosures.
Most of the properties sold at tax auctions are free and clear of a mortgage. (Think about it — a bank would have foreclosed already.) Someone paid off the note. So why did they stop paying their taxes?
The common assumption is that property owners just don’t want to pay. That may be true of some. Others could be elderly, in a nursing home or dead. Or maybe they don’t know how to petition for a lower tax assessment. Or haven’t availed themselves of property tax breaks based on their age or veteran status. Or don’t know they could get another mortgage to pay off the debt.
By investing more at the front end of a foreclosure, counties might avoid the expense and headaches on the back end imposed by the Supreme Court’s requirement that property owners be justly compensated.
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