Government May Not Avoid Just Compensation in Debt Seizures

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Some state governments have been acting as if the Fifth Amendment’s requirement of just compensation doesn’t apply in the course of collection of government debts. Last Thursday, the Competitive Enterprise Institute and the Buckeye Institute submitted an amicus brief in the case Tyler v. Hennepin County, asking the Supreme Court to step in and stop government debt-collection abuses.

The Fifth Amendment requires that when government takes private property, it pays just compensation. This constitutional protection ensures that private individuals are not forced to bear disproportionate government burdens—and requires that such takings are no larger than necessary for a public use.

Here’s how it works: Assume that some small debt is owed to the government. To recover the amount owed, the government can seize property. It’s reasonable to think that the government still owes just compensation for such takings. The “just” value in such a circumstance is the fair market value of the property seized minus the debt owed.

But Minnesota and a dozen other states don’t see it that way. Hennepin County, Minnesota, was owed $15,000 by 93-year-old Geraldine Tyler. The county therefore seized her home, sold it for $40,000, and kept all the money. That is, the government didn’t just keep the $15,000 it was owed; it kept all $40,000. According to the Eighth Circuit, any value that Geraldine Tyler had in the value of her home above $15,000 was eliminated by the foreclosure itself, so she was owed nothing.

This is contrary to the understanding of the Founders who ratified the Fifth Amendment and recognized the ownership of individual property owners’ equity. As early as 1884, the Supreme Court held that “the surplus of that sum, beyond the [] tax, penalty, interest, and costs, must be regarded as being in the treasury of the United States, for the use of the owner, in like manner as if it were the surplus of purchase money received by the United States from a third person on a sale of the land to such person for the non-payment of the tax.” United States v. Lawton (1884).

Think about what happens when a lender provides a loan to secure a mortgage for a property, and then the government swoops in to take the property because the borrower has failed to pay a government debt (for instance, property taxes). Any lender’s ability to collect the collateral on that mortgage in default has just been eliminated, even though there was no wrongdoing at all by the lender. No functioning mortgage lending system can operate where property ownership is so insecure.

Protecting the rights of such property is a core responsibility of government. As James Madison noted:

Government is instituted to protect property of every sort; as well that which lies in the various rights of individuals, as that which the term particularly expresses. This being the end of government, that alone is a just government, which impartially secures to every man, whatever is his own.

Government can take the value it is owed, but taking more than that is not just and violates the very purpose for which government exists. The Supreme Court has the opportunity to end such abuses during its next term, and we hope our amicus brief will help it to do so.