A handful of foreclosed homeowners are suing several Wisconsin counties to recoup the excess proceeds from the sale of their properties.
Wisconsin recently joined 40 or so other states to block jurisdictions within its borders from keeping the entire proceeds from foreclosure sales rather than just what was owed, a practice known as “home equity theft.” But the amendment affects only foreclosures after April 3, 2022.
The plaintiffs in the suit all had their homes sold prior to that date. In one case, according to the suit, two former owners who had a tax debt of $4,762.54 charge that their property was sold at auction for $31,000. After deducting the costs of the sale and other costs, the state collected $25,837.46 in excess proceeds from the sale of the plaintiffs’ property, the suit says.
According to the lawsuit’s tax sale excess proceeds list, Wisconsin collected between $20,000 and $240,000 in profit from each foreclosure sale of the other six plaintiffs’ properties.
In May 2023, the Supreme Court, in a rare unanimous ruling, held in a Minnesota case that authorities cannot legally keep the difference between what was owned and what the property sold for.
“The taxpayer must render unto Caesar what is Caesar’s, but no more,” wrote Chief Justice John Roberts in his opinion for the 9-0 decision that the practice violates the takings clause of the Fifth Amendment. “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 than she owed.”
In a concurring opinion, Justice Neil Gorsuch, joined by Justice Ketanji Brown, wrote that the practice also may violate the Constitution’s excessive fines clause. “Economic penalties imposed to deter willful non-compliance with the law are fines by any other name,” he wrote. “And the constitution has something to say about them: They cannot be excessive.”
Both the National Association of Home Builders (NAHB) and National Association of Realtors (NAR) filed amicus briefs in the case in support of the plaintiff, a 94-year-old woman who owed $2,300 in unpaid taxes plus $12,700 in penalties. Her one-bedroom apartment in Hennepin County sold at auction for $40,000, with the state pocketing the $25,000 profit.
That case was supported by the Pacific Legal Foundation, a national public interest law firm that defends Americans from government overreach and abuse whose motto is “We sue the government when it violates your constitutional rights.”
