Recently, the U.S. Supreme Court unanimously ruled that states seizing and selling property to collect unpaid taxes were in violation of the Constitution’s Fifth Amendment if they kept more than what taxpayers owed.
In Tyler v. Hennepin County, a 94-year-old woman in Minnesota had stopped paying property taxes on her condominium after moving into an assisted living facility. By the time Hennepin County seized the property, the woman, Geraldine Tyler, owed about $2,000 in taxes and another $13,000 in penalties and interest. The county sold the condo at auction for $40,000 and kept not only the $15,000 that was due, but the remaining $25,000 as well.
The Supreme Court ruling is a major victory for property rights in the U.S. and should be examined more closely in Baltimore. Unlike Minnesota, Baltimore City code requires that surplus funds from tax sale auctions be returned to homeowners. So, on its face, the Supreme Court case seems irrelevant. But it is rare that a Baltimore homeowner who has lost their home after tax sale sees the surplus funds they’re owed.
In February, The Baltimore Banner exposed Baltimore City for withholding surplus funds from homeowners in violation of city code. The city is sitting on a vast sum of money — about $6 million — owed to former homeowners, yet still has not created any meaningful process to return these funds, which date back to 2016 and are sitting untouched in city coffers.
The city of Baltimore is effectively doing what the Supreme Court just unanimously struck down. Like Hennepin County, they are taking homes because of unpaid property tax bills and pocketing both the amount owed to them in taxes and all surplus funds from the auction. There is no law on the books that says Baltimore should be allowed to take more from the homeowner than what is due. And quite frankly, it’s just not right.
The city finance department had attempted to return funds to former homeowners by sending letters about how to claim surplus funds but stopped because the letters were not being delivered due to inaccurate address records. Now, if the city just foreclosed on a homeowner’s property, why would the city then send letters to the same address the homeowner was just evicted from? It makes no sense, particularly if the city is truly trying to reach these homeowners. Many of these former homeowners — now housing destabilized — often have temporary living situations. So they no longer may have a permanent address recorded with the city.
The current tax sale system is already harmful and predatory. After tax sales, people are facing both housing and financial instability. The lack of effort to get people their funds, however minuscule, is unconscionable, and based on the recent Supreme Court’s guidance — unconstitutional.
In the current tax sale system, the city and tax sale purchasers receive their revenue and assets. Homeowners, on the other hand, lose their homes and all surplus funds to which they are entitled.
For the few homeowners who know about the surplus funds, obtaining these funds is an arduous burden. Instructions on how to claim these funds are not easily accessible to the public and are extremely confusing or inaccurate. For example, nowhere in the claims process for Baltimore does it state that a court order is required to claim the surplus funds. It only indicates that a notarized affidavit is necessary. Nonetheless, most legal providers assisting with claiming the funds are forced to file a motion in court. Those motions have sat in the courts for upwards of six months awaiting rulings.
These surplus funds are often essential for people who have just lost their homes. This process, mired in a lack of clear and accurate information, has led to the growth of a new questionable industry — where companies are obtaining lists of people with unclaimed funds and delivering the funds to them for a high commission.
As a solution, surplus funds should be included in the process of foreclosure. So, when the homeowner receives the order granting judgment in the foreclosure, the right to recover any excess funds would also be included in the order. Another option is to allow former homeowners to collect the funds using a notarized affidavit and a form of identification, without the need to file a separate motion with the court.
At the top of this year’s legislative session, wholesale reform of the Baltimore City tax sale system was on the list of priorities. If there is no commitment to reforming the whole tax sale system, then at least give the residents what they are entitled to. Render unto Caesar what is due, no more.
Former homeowners have rendered more than just delinquent taxes to the city, they have lost a home, equity, memories and generational wealth.
Aja’ Mallory is a staff attorney at the Maryland Volunteer Lawyers Service. Her practice focuses on housing and consumer issues for Marylanders of limited means.
