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Sixth Circuit Rules Government Cannot Seize $300,000 in Home Equity to Pay $22,000 Tax Debt

As co-blogger Jonathan Adler points out, the US Court of Appeals for the Sixth Circuit recently ruled,  in Hall v. MeisnerThe government can’t seize $300,000.00 in equity from a home to cover a $22,000 tax delinquency. Home equity theft is a type of taking that requires “just compensation” as required by the Fifth Amendment’s Takings Clause. Raymond Kethledge (a prominent conservative judge who has been considered as a possible Republican Supreme Court nominee) wrote the ruling.

This ruling is a key follow-up to the reasoning behindRafaeli, LLC against Oakland CountyA 2020 Michigan Supreme Court decision. It reached the same conclusion in accordance with the Michigan state constitution, but this time it was based on facts far more severe than those of Hall In order to settle a $8.41 tax debt, Oakland County in Michigan took the whole value of a home worth $24,500.

The two cases are notable for two reasons. The Sixth Circuit ruled the case using the Takings Clause, Fifth Amendment, of the federal constitution and not a state constitution. The Sixth Circuit clarifies that states can’t avoid liability for passing laws to redefine “long-established” ownership interests. This latter argument was made by the government. HallCase from the state supreme Court

Governments may continue to accept recognition for a long timeAs a result, established interests in real estate are To take them, you will need a device. It was also the result of the Michigan Act.This was the lie that I told to the plaintiffs. And we are in agreement with the plaintiffs. The County took their property on the basis of the facts here. without just compensation….

The Fifth Amendment’s Takings Clause stipulates that private property is protected. You cannot “be”
taken for public use, without just compensation…” They argue for the plaintiffs Oakland County made that happen when it took the “absolute title”, as payment, to their homes For tax delinquencies which were not more than a fractThey are able to take the home’s values into account. Specifically, they They argue they had each a vested interest in the property that is usually called “equity in one” At homeThis refers to the property’s actual value, minus any liens and other encumbrances.

For it, the district courts part, disagreed….. Particularly, Court ruled that the property of the property’s former owner can be foreclosed upon. Any surplus profits (i.e. proceeds above the tax delinquency) are obtained by The After a foreclosure, you can “foreclosing government unit”.If indeed there was. This is how it works In this case, the court relied heavily on Michigan Supreme Court’s opinion.RafaeliWhich? arguably said as much… HYou are the one closing governmental unitThe CountyIt had no surplus from the disposition of it Plaintiffs’ houses, as it transferred them to the City of Southfield for only the amount of Their tax delinquencies.

We respect where it isHowever, I do not agree with the court. It assumes that The only way to answer the question of whether or not the County took property from the plaintiffs is by referring to Michigan law. The federal Constitution protects and creates property rights. This means that the existence of property interests, for purposes of determining whether they were taken, is determined using existing rules or understandings that are independent sources such as state law. Phillips v. Washington Legal Foundation, 524 U.S. 156, 164 (1998…  But the Takings Clause would be a dead letter if a state could simply exclude from its definition of property any interest that the state wished to take. To the contrary, rather, “a State may not sidestep the Takings Clause by disavowing traditional property interests long recognized under state law…”Id.At 167.

It is now possible that Michigan will also disavow traditional property rights. Simply by delimiting them in the General Property Tax Act. Interest that is paid by the plaintiffs Invoke here again is Equity in their housesFollowing the principles for long articulated by courts of equity, before their merger centuries later with courts of law….

Judge Kethledge continues to state that an Anglo-American law tradition has long held that foreclosure doesn’t allow the government the right to seize all of the equity in the house. This is different from the case where the only amount necessary to pay tax duelincy or another obligation.

The Takings Clause is part of a debate that has been ongoing over whether property rights covered by the Takings Clause can be purely defined in state law (in this case, the state could often avoid takings responsibility simply by redefining them) or whether they also need to be defined through a mixture of general and natural laws. The Sixth Circuit  is right to conclude that broader legal principles constrain the states here. However, I’d like to add that states are constrained, at the very least, by property rights understandings under natural law. This point is briefly covered in my article (pp. 52-53, and Chapter 2 in my book. The Grasping hand.

Given the high value the Founders placed on property rights, it would be strange—to say the least—if these constitutional rights were left entirely at the mercy of state governments to redefine as they please, because state law protects them and role in defining their scope. It would be just as valid to allow states to expand the definitions of other constitutional rights. On the basis of state history, which has historically established the boundaries of assault and battery protection, the rights to speech, as well as bodily autonomy, could the states also decide to limit speech by legislating against libel and slander.

NOTE: My wife is employed by Pacific Legal Foundation. They litigated the Sixth Circuit case as well the Michigan Supreme Court case on their behalf. However, she was not involved in any of these cases.