The United States District Court for the District of Columbia denied a motion to dismiss filed by the District of Columbia in a case filed by a homeowner that lost his home as a result of a tax sale.
The homeowner, Benjamin Coleman, filed the suit on behalf of all city residents who lost their homes in tax lien actions filed in the District of Columbia. The homeowner failed to pay a $133.88 real property tax bill on his home, which was worth approximately $200,000 and for which he had no mortgage. The District of Columbia then put a lien on his home and sold a tax certificate for the lien to a company that demanded the repayment of the lien in the amount of $317.35 and $4,999 in interest and additional expenses to have the property redeemed from tax sale. After the company foreclosed on the homeowner’s right of redemption, it received the title to the property, evicted the homeowner, and sold the home for $71,000. The homeowner received no proceeds from the sale of his home.
After finding that it had jurisdiction to adjudicate the case, the district court held that the homeowner has stated a claim for violation of the Takings Clause of the United States Constitution. The court concluded:
[A] Takings Clause violation will arise when a tax-sale statute grants a former owner an independent property interest in the surplus equity and the government fails to return that surplus. The question Mr. Coleman’s case presents is: What if the tax-sale statute does not provide a right to the surplus and the statute provides no avenue for recovery of any surplus? A property interest in equity could conceivably be created by some other legal source. In that circumstance, failure to provide an avenue for recovery of the equity would appear to produce a result identical to Lawton: Property to which an individual is legally entitled has been taken without recourse.
The District of Columbia tax sale statute expressly provides for the taking of a homeowner’s surplus equity in the property but contains no procedure for the recovery of that surplus.
Since this case was filed in September 2013, the District of Columbia enacted emergency reforms to the tax sale procedure, which are highlighted on the city’s website. Tax sale programs have also drawn the attention of federal lawmakers who have called for increased scrutiny and changes in local laws.
In light of its ruling on the motion to dismiss, the district court ordered the parties to file supplemental briefs on the pending motion for class certification, which has been set for a hearing on December 16.