In 2014, Uri Rafaeli was shocked to learn that his local government seized his $60,000 rental house to collect an $8.41 tax debt. Rafaeli had paid all his 2012 and 2013 property taxes, and first part of his 2014 obligation. But he had mistakenly underpaid his 2011 taxes by a few dollars. The county foreclosed on Rafaeli’s house, sold it for almost $25,000, and kept every penny.
You may be relieved to hear this happened in Southfield, Michigan. But you shouldn’t be. Montana law allows the same type of injustice.
For example, the Great Falls Tribune reported that Gary Guidotti, a 78-year old electrician in Cascade County Montana lost his home valued at $139,300 because of a $1,125 tax debt. But rather than the local government profiteering, investors reaped the windfall — taking title to his house for pennies on the dollar. Guidotti got nothing and was left homeless.
Under Montana’s property tax law, county treasurers essentially sell land to private investors for the amount of the unpaid taxes, interest and penalties due on the property. Then, if the property owner, for any reason, fails to pay the full debt within three years, the investor can take the entire property, free and clear.
And before the property owner can save his property by paying off the tax lien, he also has to pay all of the more recent tax assessments first, which is confusing and adds an unnecessary burden to paying off an older debt.
For most people, their home and land equity is their biggest source of savings. Facing a foreclosure sale would be penalty enough, since foreclosures already sell for significantly less. But adding insult to injury, Montana’s tax foreclosure law takes everything — often amounting to the debtor’s life savings.
Our nation’s founders would be appalled.
Even subjects of the English king enjoyed greater property protections. In the 18th century, Sir William Blackstone explained in his famed Commentaries on the Laws of England that when tax collectors seized private property to pay a tax debt, they did so subject to an implied promise to only sell as much as necessary to pay the debt and to return any extra profits to the former owner. Moreover, if the debt would be satisfied by the sale of much less valuable personal property, then the land would never be sold in the first place.
Because American law was built on English common law, the colonies and early states followed these same rules. And today, most states still protect land and home equity by auctioning debtors’ land and refunding extra profits to the former owner.
Montana’s property tax law breaks from that history, giving Montanan tax debtors fewer rights than English subjects enjoyed hundreds of years ago.
But that could soon change. The legislature is considering amending state law to restore these lost private property rights.
A bipartisan bill sponsored by Sen. Cary Smith, which just passed the Senate with overwhelming support from both parties, would restore historic property rights for residential properties. Although farms and other commercial property deserve similar protection, Senate Bill 253 is a very important step in the right direction. If it passes the state house and Gov. Steve Bullock signs it into law, Senate Bill 253 would require the sale of tax-indebted residential property to the highest bidder, not for 1 percent of its true value. Once all accrued taxes, interest, penalties, and fees were paid, the remaining profits would be returned to the former homeowner.
Furthermore, the bill would also help prevent home foreclosures in the first place, by exempting homeowners from Montana’s unusual requirement that debtors pay recent tax assessments before paying the oldest debt that puts them in danger of losing their property.
Many courts, including the state supreme courts of New Hampshire, Vermont, and Mississippi, have held that similar attempts by local government violated the constitutional requirement that government pay just compensation when it takes private property for a public use. Michigan’s Supreme Court may soon do the same in Rafaeli’s case. And when that happens, counties will have to pay just compensation to thousands of former owners.
Montana should change course before it too must pay for handing countless life savings over to shrewd investors. Whether it enacts Senate Bill 253 in its current form or something even stronger, like the original version of the bill, Montana should end the unconstitutional and unconscionable practice of robbing poor landowners of their home equity and unjustly enriching outside financial firms.
— Christina Martin
Christina Martin is an attorney with Pacific Legal Foundation, a nonprofit public interest organization providing pro bono legal representation to Uri Rafaeli.