*Joshua Rodriguez
I. Introduction
In August of this year, Baltimore City resident Deana Woodward lost her home to the City’s tax sale process, likely due in part to an error by Baltimore City’s Department of Public Works.[1] Baltimore City executed Ms. Woodward’s eviction August 7, 2023, despite efforts to cease forced removals on owner-occupied tax sale properties.[2] Baltimore City’s tax sale process has garnered public criticism for several years due to its destructive impact upon the welfare of the city and its residents.[3] The City has withheld its power to execute tax sales on owner-occupied properties in recent years, but cases like Ms. Woodward’s still slip through the cracks.[4] The infamous Baltimore City tax sale system perpetuates patterns of extreme economic disparities among Baltimore neighborhoods and entrenches housing instability within the city.[5] While Baltimore City failed to overhaul tax sales in Maryland through the legislature in the previous legislative session,[6] recent and pending case law place new pressures on our state legislators to evaluate the validity of the current system.[7]
II. Baltimore City Tax Sales and Reform Efforts
In Baltimore City, a property owner can lose their property in annual tax sale auctions as a consequence of property tax defaults as low as $750.[8] In a tax sale auction, businesses and investors bid on the properties to win a tax lien certificate.[9] The proceeds of the sale are meant to cover the tax debts owed on the properties; however, winning bids often exceed the amount of tax arrears.[10] Under the City’s tax sale scheme, the City owes the surplus amount to the property owner; however, the City rarely delivers.[11] Beyond unreturned surpluses, the City’s tax sale system results in thousands of properties annually recycled through the system without drawing a bid for sale.[12] As a broad stroke response to the troubles of tax sales, The Mayor’s Office of Baltimore City introduced a sweeping tax sale reform bill during the Maryland 2023 Legislative Session.[13] The bill failed at the “eleventh hour” in part due to unexpected budgetary pressures.[14] While the legislative resolution failed in Annapolis, the United States Supreme Court soon thereafter took up the issue of tax sales, drawing a new constitutional limit in Tyler v. Hennepin County.[15]
III. Tyler v. Hennepin County
In April 2023, the Supreme Court awarded the surplus revenue from a Minnesota tax sale of real property to the property’s prior owner, Ms. Geraldine Tyler.[16] The Supreme Court found the Minnesota tax scheme’s retention of surplus proceeds forced an unconstitutional taking, and therefore required the state to deliver the tax sale surplus to Ms. Tyler as just compensation.[17] The Court’s decision was a powerful declaration on potential implications of tax sale systems; however, in refraining to discuss tangential issues, the Court displayed caution in exploring constitutional underpinnings of tax sales.[18]
Most notably, the Court did not consider whether a government owes the equity value of real property to the property owner.[19] The Minnesota property tax system allowed for Hennepin County to sell the property outright, thereby muddying the distinction between the property’s equity value and a tax sale surplus.[20] Ms. Tyler therefore argued a property interest in the surplus was taken, and the Court limited its holding to address an interest in the surplus according to Ms. Tyler’s argument.[21] United States courts have since already cited to Tyler in forty-six opinions, as municipalities across country feel the jurisprudential waves from the Court’s new application of the Takings Clause.[22] The Court’s opinion defers the issue of takings via tax sales to state-specific interpretations by determining property interests via a localized analysis, reviewing state legal and historical precedent as a central analytical step.[23] As the Maryland legislature prepares for renewed debates around its tax sale scheme, further interpretations of Tyler v. Hennepin may inform the legislature of the constitutional bounds it must work within.[24]
IV. Nieveen and Fair and the Equity Question
The Court received the Tyler petition at the same time as two others from Nebraska, Nieveen v. TAX 106[25] and Continental Resources v. Fair.[26] While Tyler dealt with Minnesota’s surplus retention scheme, Nebraska has a surplus return system, like that of Maryland.[27] In a surplus return system, a property owner receives the surplus of a tax sale.[28] While the Court remanded Tyler with clear instructions that retention of surplus by the government was unconstitutional in light of a valid property interest in such surplus, Nieveen and Fair present the issue of whether the tax sale’s effect upon the owner’s interest in the equity value of a property also qualifies as a taking.[29] In both cases, the Supreme Court of Nebraska rejected claims that the government took the equity of the property from the owner.[30] Courts appear reluctant to address the difficult question whether a property interest exists in the equity inherent of real property.[31] Instead of forming a legal analysis for surplus return jurisdictions, the U.S. Supreme Court remanded both Nieveen and Fair for reconsideration in light of Tyler.[32] By remanding these cases to the circuits, the Court will allow further debate on the equity question through state-specific litigation.[33]
V. Conclusion
Advocates for tax sale reform in Baltimore eagerly await an opportunity to curb the crippling effects of tax sales on their city.[34] In Tyler, the Court marked a strong but indeterminate boundary, leaving constitutional questions for litigants and state legislators to sort out in the coming decades.[35] Regardless of the Maryland legislature’s course of action, change is on the way to the Maryland tax sale system—one way, or another.[36]
*Joshua R. Rodriguez is a second-year day student at the University of Baltimore School of Law. He serves as a Staff Editor for the Law Review, as Secretary for the UB Law Student Bar Association, and as a Research Assistant to Professor Robert H. Lande, Emeritus. He is also a member of UB’s Latin American Law Student Association and the Royal Graham Shannonhouse III Honor Society. Joshua has a background in international development, but has since turned his interest in economic and community development to the domestic sphere. Joshua is driven by and pursues scholarship around complex issues related to economics, wealth disparities, and justice. He encourages readers to engage in their local community or neighborhood association to learn more about housing crises in their backyard, whether that be Baltimore or beyond.
[1] Hallie Miller, A Baltimore Woman Faces Eviction over Unpaid Water Bills from 2018, Despite State Law, Balt. Banner, (Aug. 5, 2023, 5:30 AM), https://www.thebaltimorebanner.com/community/housing/baltimore-eviction-unpaid-water-bills-NSHUPL462BALPKJMBDWFRLBBMI/.
[2] Id.
[3] Nick Thieme & Sophie Kasakove, Tax Sale Nightmare: How an Unpaid Bill Can Cost Baltimore Homeowners Thousands, Or Even Their Homes, Balt. Banner (Jan. 26, 2023, 11:10 PM), https://www.thebaltimorebanner.com/community/housing/baltimore-tax-sale-lien-auction-64APUHOPUFB6VJ4Z6IX6WC7NMU/.
[4] Miller, supra note 1.
[5] Thieme & Kakakove, supra note 3 (discussing the popular symbolic “Black Butterfly” image used to describe Baltimore City’s urban landscape; the “butterfly” refers to stretches of Baltimore City’s geography as it extends upward and outward from the city center, correlated with concentrations of minority residents, higher rates of poverty, and higher rates of housing instability).
[6] See infra notes 13–14 and accompanying text.
[7] See infra notes 24, 31–36 and accompanying text.
[8] Md. Code Ann., Tax–Prop. § 14-811.
[9] See Laila Milevski, How Baltimore Property Tax Sales Work: An Illustrated Guide, Balt. Banner (Jan. 26, 2023, 8:50 AM), https://www.thebaltimorebanner.com/community/housing/baltimore-property-tax-sale-guide-4DNWF6THQBEBTNTJM7IXVWO5NI/ (providing a succinct overview of the Baltimore City tax sale system).
[10] Sophie Kasakove & Nick Thieme, Baltimore Residents Who Lose Homes After Tax Sales Often Don’t See Excess Funds They’re Owed From Auction, Balt. Banner (Feb. 13, 2023, 3:45 PM), https://www.thebaltimorebanner.com/community/housing/baltimore-city-tax-sale-foreclosure-funds-TWQXWYNBNJGABKYCDMCFCZ7WCM/ (outlining that Baltimore City currently sits on an unclaimed $6 million tax sale surplus).
[11] Id.
[12] Mary Miller & Mac McComas, The Cost of Baltimore’s Vacant Housing, Johns Hopkins Univ. 21st Century City Initiatives (Sept. 2022), https://21cc.jhu.edu/wp-content/uploads/2022/09/the-costs-of-baltimores-vacant-housing-1.pdf.
[13] Sophie Kasakove et al., Proposal to Overhaul Tax Sale Fails to Pass After Baltimore City Pumps Breaks on Own Legislation, Balt. Banner (April 11, 2023, 4:36 PM), https://www.thebaltimorebanner.com/community/housing/baltimore-tax-sale-reform-legislation-stalled-7Y3HYTVTCFHM7GSBUGRIKRQ7AM/.
[14] Id.
[15] Tyler v. Hennepin Cnty., 598 U.S. 631, 647 (2023).
[16] Id. (“A taxpayer who loses her $40,000 house to the State to fulfill a $15,000 tax debt has made a far greater contribution . . . than she owed . . . . [She] must render unto Caesar what is Caesar’s, but no more.”).
[17] Id. at 645.
[18] Id. at 647–48.
[19] Compare Tyler, 598 U.S. at 637–43, 47 (“A taxpayer who loses her $40,000 house to the State to fulfill a $15,000 tax debt has made a far greater contribution to the public fisc than she owed. The taxpayer must render unto Caesar what is Caesar’s, but no more.”) with Rafaeli, LLC v. Oakland Cnty., 505 Mich. 429, 498–99 (2020) (Viviano, J. concurring) (“The majority’s flawed interpretive methodology has led it to characterize the “property” at issue as merely the surplus proceeds from the foreclosure sale.”). See also infra note 29 and accompanying text.
[20] Rule 26(f) Report at 2, Tyler v. Hennepin Cnty., 505 F. Supp. 3d 879 (D. Minn. 2020), aff’d, 26 F.4th 789 (8th Cir. 2022), rev’d 598 U.S. 631 (2023) (No. 20-cv-889-PJS-BRT).
[21] Tyler,598 U.S. at642–43. The Court also refrained from addressing implications of an outstanding mortgage. See Tyler,598 U.S. at636–37. The Court decided to also not address Ms. Tyler’s alternative argument of unconstitutionality, that such a tax sale procedure would stand as an excessive fine. Tyler,598 U.S. at 647–48.
[22] See, e.g., Nieveen v. TAX 106, 143 S. Ct. 2580 (2023); Fair v. Cont’l Res., 143 S. Ct. 2580 (2023); Sinclair v. Meisner, No. 2:18-CV-14042-TGB-MJH, 2023 WL 3854068, at *1 (E.D. Mich. June 6, 2023); Basilis N. Stephanatos v. Wayne Township, et al., No. CV 12-1793, 2023 WL 5605564 (D.N.J. Aug. 30, 2023); Valancourt Books, LLC v. Garland, No. 21-5203, 2023 WL 5536195 (D.C. Cir. Aug. 29, 2023); Jenkins v. United States, 71 F.4th 1367 (Fed. Cir. 2023).
[23] Tyler, 598 U.S. at 638.
[24] See infra notes 31–36 and accompanying text.
[25] See Nieveen, 143 S. Ct. 2580.
[26] See Fair, 143 S. Ct. 2580.
[27] Jenna Christine Foos, State Theft in Real Property Tax Foreclosure Procedures, 54 Real Prop. Tr. & Est. L.J. 93, 99–103 (2019) (demonstrating that approximately nine states facilitate surplus retention schemes, and approximately thirty-two states including Maryland facilitate surplus return).
[28] Id. at 99–100.
[29] See Nieveen v. TAX 106, 311 Neb. 574, 589, cert. granted, judgment vacated, 143 S. Ct. 2580 (2023); Cont’l Res. v. Fair, 311 Neb. 184, 199–200, cert. granted, judgment vacated, 143 S. Ct. 2580 (2023).
[30] Nieveen, 311 Neb. at 589; Fair, 311 Neb. at 199–200.
[31] See Rafaeli, LLC v. Oakland Cnty., 505 Mich. 429, 498–99, 515 (2020) (Viviano, J. concurring) (“My analysis . . . starts at the beginning: the property owners’ preexisting interest in the real estate, or their equity . . . . Equity has better historical grounding than any novel and freestanding right to proceeds—indeed, it is the reason entitlement to proceeds may exist—and is a common enough concept that I cannot comprehend the majority’s efforts to avoid it.”).
[32] Nieveen. TAX 106, 143 S. Ct. 2580 (2023); Fair v. Cont’l Res., 143 S. Ct. 2580 (2023).
[33] See Nieveen, 143 S. Ct. at 2580; see also Fair, 143 S. Ct. at 2580.
[34] See, e.g., The Plan, Renew Baltimore, https://renewbaltimore.org/the-plan/ (last visited Sept. 5, 2023); see also, Reforming Baltimore’s Tax Sale System, HUBWest Balt. Cmty. Dev. Corp., https://www.hubwestbaltimore.org/city-tax-sale-system (last visited Sept. 5, 2023).
[35] Cf. Editorial Advisory Board, Maryland Tax Sale Process Must Change to Stop Harming Black Residents, Daily Rec. (Feb. 23, 2023, 2:34 PM), https://thedailyrecord.com/2023/02/23/tax-sale-the-supreme-court-and-maryland/ (discussing Maryland’s need for tax sale reform and the potential implications of Tyler v. Hennepin in response to the Supreme Court’s grant of certiorari); see generally supra note 27.
[36] Id.
University of Baltimore Law Review 