Property taxes have long funded local government services. But when the government seizes property to collect unpaid taxes, constitutional questions can arise if government ultimately keeps more than what is owed. Recent court decisions have renewed scrutiny of the laws surrounding these tax sales across the country and may call parts of Iowa’s system into question.
Under Iowa law, when property taxes go unpaid, the property owner has a limited period to pay the delinquent taxes before the property becomes eligible for a tax sale. At these sales, which take place on the third Monday in June, a private bidder pays the overdue taxes, interest, and fees in exchange for a tax sale certificate. The owner then has roughly two years to redeem the property by repaying those amounts plus interest, which currently accrues at 2% per month.
If the property is not redeemed before the redemption period expires, the certificate holder may obtain a tax deed and take ownership. In some cases, this means a homeowner can lose not only the property itself, but also the equity accumulated in it, and that a private investor receives value that exceeds the amount of taxes owed. In Maynard, Iowa, one homeowner faces an impending tax sale for owing less than $3,000 in unpaid property taxes. A current Iowa lawsuit argues that the state’s “tax-sale laws violate the U.S. and Iowa constitutions by allowing private investors to take a property owner’s equity beyond the amount owed.”
Property rights are woven into to the American system of liberty. “America’s Founders understood clearly that private property is the foundation not only of prosperity but of freedom itself,” wrote Roger Pilon, a constitutional scholar with the Cato Institute. This includes both state law and the United States Constitution. “Thus, through the common law, state law, and the Constitution, they protected property rights—the rights of people to freely acquire, use, and dispose of property,” noted Pilon.
Article I, of the Iowa Constitution specifically mentions property rights: “All men and women are, by nature, free and equal, and have certain inalienable rights — among which are those of enjoying and defending life and liberty, acquiring, possessing and protecting property, and pursuing and obtaining safety and happiness.”
In the United States Constitution property rights can be found in both the 5th and 14th Amendments. The Takings Clause within the 5th Amendment in part states that no person shall “be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”
In similar language, the 14th Amendment states in part “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.”
In 2023, the Supreme Court in Tyler v. Hennipen County, Minnesota ruled that a homeowner, while liable for the taxes owed, was still protected by the Takings Clause. At issue was Geraldine Tyler, who at 94 had fallen behind on her property taxes. Tyler owed $15,000 in taxes from her condominium, which Hennipen County sold for $40,000. The County kept the $25,000 leftover from the sale.
In a unanimous decision the Court ruled that Hennipen County “violated the Fifth Amendment’s takings clause, which bars the government from taking private property for public use without adequately compensating the property owner.” In this opinion, Chief Justice John Roberts argued that this represented a “taking of property without just compensation, in violation of the Fifth Amendment.” The Court ruled that the $25,000 belonged to Tyler and not Hennepin County.
In his reasoning Chief Justice Roberts acknowledged that historical legal precedent validated Tyler. “The principle that a government may not take more from a taxpayer than she owes can trace its origins at least as far back as Runnymeade in 1215, where King John swore in the Magna Carta that when his sheriff or bailiff came to collect any debts owed him from a dead man, they could remove property ‘until the debt which is evident shall be fully paid…’”
Chief Justice Roberts also noted that states are subject to this precedent, writing, “The consensus that a government could not take more property than it was owed held true through the passage of the Fourteenth Amendment.” Finally, he argued that “our precedents have also recognized the principle that a taxpayer is entitled to the surplus in excess of the debt owed.” As Chief Justice Roberts wrote:
Minnesota cares only about the taxpayer’s failure to contribute her share to the public fisc. The County cannot frame that failure as abandonment to avoid the demands of the Takings Clause. The Takings Clause “was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole.”
Christina Martin, an attorney with the Pacific Legal Foundation and who represented Tyler, argued that the Court’s ruling “affirms that property rights are fundamental and don’t depend solely on state law. The Court’s ruling makes clear that home equity theft is not only unjust, but unconstitutional.
The constitutional question raised by Iowa’s tax sale system is not whether government may collect unpaid taxes. It clearly can. The question is whether the government, through its assignment of rights to a private investor, may receive property value that exceeds the amount of the tax debt itself. Based on both the United States and Iowa Constitutions, particularly the protections afforded by the Takings Clause and long-recognized property rights, there is a strong argument that taxpayers retain an interest in any equity beyond what they owe. As courts continue to examine these issues, the outcome could have significant implications for property owners across Iowa and the balance between tax collection and constitutional property rights.
Print a PDF