Property Tax Forfeiture

[Ghel]

This is a case that I've been hearing about this week. MPR has a pretty good article about it here: https://www.mprnews.org/story/2023/0...ghts-test-case

Basically, this old woman moved out of her condo into an assisted living place and stopped paying her property taxes on the condo. The article doesn't say if she couldn't afford the property taxes or if she just decided to abandon the property. I wondered why she didn't try to sell the condo, but according to the article, she owed $48,000 on her mortgage. Her mortgage might have already been underwater when she moved out.

I also wondered why the mortgage company didn't foreclose, but they probably saw that the mortgage was already under water before figuring in past due property taxes and HOA dues, and decided that they weren't going to throw good money after bad.

But I'm getting ahead of the story. In 2015, after many letters to the owner, the county took the property in tax forfeiture. The county sold the property at auction and got $40,000 for it. The owner owed $15,000 in back taxes, interest, and fees. The county kept the remaining $25,000, as is the norm. Now the former owner is suing the county trying to get that $25,000. (I suspect it's her kids, really, who are pushing this, since the old woman is 94 now.) This case has worked its way through the court system and is now being seen by the US Supreme Court.

I'm of several minds about this. If the woman had been living in and maintaining the property up until the county took it, I could see where she'd have a point that she should get the excess funds from the sale of her condo. But she effectively abandoned the property. There's no indication that her kids were living in it or even looking after it. Also, she had a mortgage on the property that, presumably, she stopped paying when she moved out. As a lender who sometimes does collections, I have this impulse to say that the mortgage company should get that extra $25,000 to recoup some of the losses from that bad loan. And I get that the county has administrative costs that aren't included in that calculation - employees who have to file documents, maintain the property (though maybe not so much with a condo), set up and run the auction, etc. So the county isn't really "getting" the $25,000.

Another article I was reading yesterday showed a graph of how much money Hennepin County gained/lost on tax forfeit properties in the past ten years. The only year they netted a profit was 2015 (if I remember correctly - not sure where to find the article now). Every other year for the past ten, the county lost money overall on tax forfeit properties. Which makes sense. A lot of them are rundown or poorly maintained. Buildings need to be either brought up to code or torn down before they're auctioned off.

I know there's not as much traffic on fratching as there used to be, but I'm curious to see what everybody else thinks. Do homeowners who don't pay their property taxes deserve to get a portion of the proceeds when the county takes their property and sells it to someone else?

[D_Yeti_Esquire]

I suspect what we're actually witnessing is almost a "stealth" case for more wealthy people. If this story was, "billionaire has property forclosed for not paying taxes" the public would react a certain way to it. This is a 94 year old woman with a low value house. We all "feel" for her instinctively.

However, by deciding this case (the court held the state did not have rights to funds in excess of the sold value), the court has effectively either set precedent (or upheld, not sure on this one) that when someone much, much, much wealthier finds themselves in a similar situation that the state cannot profit by it and that all they'll be out in funds is the back taxes on the property. In some ways, they've ensured the state will always take a loss when it does this which means taxpayers subsidizing land owners.

Truthfully what I think it speaks to is just how little people actually get upset and use the government on wealthy people. Whether its a combination of the news they watch or being tied up in culture wars, you can almost "see" how the wealthy use the courts and public perception as a weapon to make the world easier on themselves. Normal people don't bat an eye - they just call it unfair when they've ignored it long enough that it leads to really warped outcomes.

This outcome will be noticed when some multimillion dollar property is put into forclosure and another billionaire buys it for pennies on the dollar - at taxpayer expense.

[Ghel]

Yes, this sets a possibly dangerous precedent. Already, a class action suit is in the works in Minnesota from people who have had their homes go tax forfeit and the county (Hennepin County, again) kept the equity when they sold the property. I'm going to be keeping an eye on that case.