Minnesota poised to pass new property forfeiture laws after U.S. Supreme Court ruling, settlement

The Minnesota Legislature is poised to pass new property forfeiture laws after the U.S. Supreme Court in 2023 said the state’s current system is unconstitutional. 

The high court last year unanimously ruled in Tyler v. Hennepin County that the county violated a woman’s constitutional rights when it sold her forfeited property for more than she owed in taxes and pocketed the difference, or the surplus.

The state recently agreed to pay $109 million to settle class action lawsuits filed on behalf of Minnesotans who lost their properties because of unpaid taxes while the counties kept the surpluses. Last month, Democratic-Farmer-Labor lawmakers released a $477 million budget agreement for this session, and the $109 million settlement was by far the costliest item in the agreement.

A bill authored by Rep. Sandra Feist, DFL-New Brighton, seeks to make Minnesota’s property tax forfeiture process constitutional by requiring a public auction; property owners would receive clear notice that they are entitled to file a claim for the surplus from the sale.

“We must take steps to immediately reform our state’s tax forfeiture laws,” Feist said during an Environment and Natural Resources Finance and Policy Committee hearing on Tuesday. “If we’re not able to reform our laws, we are perpetuating a broken system for property owners and adding fiscal liability to our state. This problem will only get more expensive as time passes.”

After a property goes through a public auction, counties would have 60 days to notify the owners that they can claim a surplus, and the owners would have six months to do so.

Groups that have worked on the legislation said they are happy with the bill, calling it a good balance between the homeowner and county.

Kileen Lindgren, legal policy manager with the Pacific Legal Foundation — the group that argued for the plaintiff before the U.S. Supreme Court — said the proposed property forfeiture system in the bill is similar to other states. Prior to Tuesday’s hearing — when lawmakers attached a significant amendment — the group was unhappy with the proposed law changes. The Pacific Legal Foundation in March stated in written testimony to the Judiciary Finance and Civil Law Committee that if enacted, the group would have considered suing — perhaps up to the U.S. Supreme Court — again.

Shortly after the Supreme Court’s decision was handed down in May 2023, the Association of Minnesota Counties convened a working group to come up with reforms. The group initially supported a judicial foreclosure process instead, but the counties are happy with the compromise, said Matt Hilgart, government relations manager with the association.

They are concerned, however, with the additional work and costs the counties will incur in the new system. Hilgart said the counties will be in charge of the public auctions, which comes with more work and additional costs.

“We’re in some ways going to be acting as realtors, which makes us nervous. That’s not necessarily a position that governments are equipped to do or set out to do,” Hilgart said. 

He also said that counties will be in charge of dilapidated properties that will likely have a hard time selling in auction, meaning counties will need to maintain them — which requires more time and money. 

Mary Jo George, director of advocacy for AARP Minnesota, said a new tax forfeiture system is important, as older, low-income adults rely on their property’s equity and can be vulnerable to an unfair tax forfeiture system.

“The loss of equity can really be devastating on the financial security of older vulnerable adults who really depend heavily on this equity for their economic survival,” George told the committee Tuesday.

Lawmakers forwarded the bill to the House Taxes Committee for further consideration.

Correction: A previous version of this article misspelled Matt Hilgart’s name.