(The Center Square) – A U.S. Supreme Court ruling could lead to a new South Dakota law that would prevent counties from keeping additional proceeds above the cost of the tax debt.
The Pacific Legal Foundation characterizes it as “home equity theft.” For example, a taxpayer owes $500 in back taxes. The county sells the property to satisfy the debt either on the courthouse steps or to a private investor. The property is sold for $1,500. The extra $1,000 does not go back to the former homeowner. The county or the investor that bought the property can keep the excess in some states.
The premise was challenged in the case of Geraldine Tyler, a 94-year-old Minnesota woman who owed $15,000 in back taxes. The property was auctioned off for $40,000. The county kept the remaining $25,000
The U.S. Supreme Court ruled the county’s actions violated the “Takings Clause,” which keeps government entities from taking property with just compensation to the owner.
The Pacific Legal Foundation defended Tyler. The organization has studied this issue for 10 years, Jim Manley, the state legal policy deputy director, told The Center Square.
Some states changed passed bills to change their policies. North Dakota passed a law in 2021 that prohibits counties from taking excess proceeds. South Dakota has not.
The foundation tracked the process through seven years in South Dakota and found 277 homes were affected at a cost of $3.4 million.
Beadle County engages in the practice, according to the foundation. Rural communities are hit the hardest, where just two out of five people have a high school degree, according to the foundation.
“This affects folks who own their homes outright, folks who’ve inherited a a home and they don’t realize that they have to pay the taxes or they’re unclear about how to do that or do it correctly,” Manley said.
Beadle County officials did not respond to a request for comment on this story.
Some people don’t believe they could lose their homes over an unpaid tax debt. But it happened to a man in Michigan who underpaid his property tax on a rental house by $8.41, Uri Raphael didn’t get the notice and lost his properties. The Michigan Supreme Court ruled that it was unconstitutional.
South Dakota Rep. Kirk Chaffee, R-Whitewood, introduced a bill that could remedy the situation, but the House Taxation Committee tabled it in February. He told the committee he plans to reintroduce the bill next year. Chaffee did not return an email sent by The Center Square requesting comment.
One of the issues that could be addressed is how counties send notices to homeowners about unpaid taxes.
“The notices need to be clear,” Manley added. “Oftentimes these notices are written in a language that’s very difficult to understand, particularly folks who are targeted by this, folks that are older, folks that are on the lower end of the income scale. This is not a rich person’s problem.”