Keeping sale proceeds in a tax foreclosure is not a “government taking” if the property owner doesn’t step-up
Land banking advocates across the country took notice of the U.S. Supreme Court’s decision in Tyler v. Hennepin County[1] that found a “government taking” occurred when a Minnesota county sold a tax-foreclosed home to recover unpaid property taxes.[2] At the time, we suggested a nuanced reading of the decision likely would result in more favorable treatment afforded to Ohio’s tax foreclosure process by the federal courts.
And now we have that more favorable treatment - handed down in late March by the federal 6th Circuit Court of Appeals in Howard v. Macomb County, albeit in a matter involving Michigan law.[3]
In 2023, Macomb County, Michigan, foreclosed on property for which the owner had failed to pay her property taxes. The County held a sale of the property and kept the full amount of the sale proceeds. The property owner sued the County, alleging a violation of the federal Fifth Amendment to the Constitution’s Takings Clause. In her complaint, the property owner cited a federal decision in the very same 6th Circuit - Hall v. Meisner[4] - in support of her claim. But the district court dismissed her complaint and that decision was affirmed in an opinion written by the appellate court’s chief judge.
The court upheld Michigan’s tax foreclosure law because it provides ample procedural steps to allow property owners to obtain any surplus value in their tax-foreclosed properties. As the basis for its opinion, the court used breathtakingly clear language – well, at least for lawyers – stating the U.S. Supreme Court “tells us everything we need to know about how to satisfy [federal law]: Nelson.”[5] Let’s unpack this.
Recall in the Tyler decision the U.S. Supreme Court hinted that New York City’s statutory procedure - allowing city residents to recover surplus value on property foreclosed for unpaid water bills - was the pathway forward in these surplus-equity-in-tax-foreclosure cases. Specifically, the U.S. Supreme Court did not did not find a taking in Nelson v. City of New York[6] because the government “simply defin[ed] the process through which the owner could claim the surplus”.[7] The Nelson Court found the property owners did not follow the required steps to request their surplus equity – and no taking occurred because those owners gave up their surplus rights by failing to follow the process to obtain it. ‘Nuff said.
The Howard decision pushes on the flywheel set spinning by Nelson. That is, this most recent case furthers the notion that it is constitutional for states to require property owners to follow a prescribed process for getting their surplus equity – or else.
The Howard Court describes, point-by-point, how the 1950s-era New York case illustrates the kind of foreclosure process that complies with the federal Constitution’s Takings Clause.[8] And the federal 6th Circuit views the Tyler decision as standing by this procedural truism in foreclosures: “the Takings Clause permits each State to ‘define[] the process through which [an] owner [can] claim the surplus’ and to keep the surplus if the owners do not comply.”[9]
Michigan law – having been modified in 2020 to permit property owners to obtain surplus value in their foreclosed properties – now gives a property owner “an opportunity to recover her surplus and set several reasonable steps for claiming it.”[10] Ms. Howard didn’t take advantage of the process. And in the court’s view, her failure to comply with Michigan’s procedures to collect surplus equity “forfeited her claim to it”.[11]
Put another way, the federal 6th Circuit viewed Michigan’s procedures for collecting the surplus equity as not compensating the property owner for a taking; rather, they prevent a taking from happening in the first place.[12]
This published opinion by the federal 6th Circuit is a nice bookend to the Ohio Supreme Court’s holding in State ex rel. US Bank Trust, N.A. v. Cuyahoga County[13] that sufficient due process protections were found in Ohio’s statutory process to defeat the takings argument raised in that case.[14] The Ohio Supreme Court held that direct transfers of tax-foreclosed properties did not constitute takings because Ohio’s statutory tax foreclosure process afforded adequate remedies to avoid a taking in the first place. Sound familiar?
[1] 598 U.S. 631, decided May 25, 2023.
[2] The conservative advocacy group, Pacific Legal Foundation – having attacked various states’ tax foreclosure processes as amounting to “takings” under the Constitution – found perfect facts screaming for redress: at the time, Petitioner Geraldine Tyler was a 94-year-old Minnesota woman who moved into senior housing and whose one-bedroom condominium home was taken by Hennepin County after she failed to pay $15,000 in property taxes and other fees due. The county sold her home for $40,000 in 2016, keeping the excess $25,000 in sale proceeds. Although the Court recognized Hennepin County’s authority to sell Tyler’s home to recover unpaid property taxes, the County “could not use the toehold of the tax debt to confiscate more property than was due” and Tyler, therefore, was entitled to just compensation (here, the $25,000 in excess proceeds from the sale of her condominium). Id. at 639.
[3] 2025 WL 941511, decided March 28, 2025.
[4] 51 F.4th 185, decided Oct. 13, 2022. The Hall decision, which cited foundational legal principles dating back to Magna Carta, signed by King John in 1215, found application of Michigan’s then-current tax foreclosure law amounted to a “taking” under the federal Constitution. See this article for a summary we wrote at the time.
[5] 2025 WL 941511 at 5.
[6] 352 U.S. 103, decided December 10, 1956.
[7] 598 U.S. at 644.
[8] There, city residents delinquent on their property taxes could take up to seven weeks to pay the overdue taxes after foreclosure proceedings commenced (as well take additional time to file answers). When owners did not follow the statutory steps for requesting surplus equity, “[n]o taking occurred… because the owners gave up their rights to the surplus by failing to follow the process for obtaining it.” 2025 WL 941511 at 3.
[9] Id., citing Tyler, 598 U.S. at 644. In building its rationale, the Howard Court engaged in a historical survey of states’ procedural steps for property owners to obtain their surplus equity in foreclosed property. The court concluded that states neither (i) provide their citizens a perpetual right to reclaim surplus funds from foreclosure sales; nor (ii) provide such surplus unless citizens “follow any state procedures along the way.” Id., at 4.
[10] Id. The process involves multiple notices, long-duration response time periods, and even public-facing instructions on how to file motions to claim any surplus.
[11] Id., citing Nelson, 352 U.S. at 110
[12] Id., also citing Tyler, 598 U.S. at 644: “A county that allows property owners to obtain any surplus after a foreclosure and keeps the residual only if the owners do not seek it does not commit a taking.”
[13] 2023 WL 2762497, decided April 4, 2023.
[14] See R.C. 323.65 to R.C. 323.79. On that point, it’s worth pointing out the procedural steps involving in Ohio’s abandoned lands statutes. R.C 323.68: Ohio’s abandoned lands process involves required title searches to identify lienholders other others with equitable ownership interests; R.C. 323.69: notice of summons and subsequent pleadings according to the Civil Rules of Procedure; R.C. 323.691: opportunities to transfer foreclosure cases to alternate venues; R.C. 323.72: opportunities for property owners to plead that amounts owed have been paid, or that the abandoned lands statutes won’t adequately preserve the person’s security interest; R.C. 323.70: a final hearing; and R.C. 323.73: disposal via public sale.
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