Despite Supreme Court Ruling, Homeowners Are Still Losing Their Properties to Tax Liens
An unpaid property tax bill of as little as $1,600 could cost you your $400,000 home.
In Arizona, Christine Searle, a 70-year-old horse trainer, is facing this exact situation. Due to an unpaid $1,607 property tax bill, she is on the verge of losing her rental property, worth over $400,000. Searle doesn’t deny owing the taxes but believes it’s unjust that the state can take the entire value of her property. “I owed them the money, but they shouldn’t take everything,” she says.
Arizona is one of nearly a dozen states that allow tax lien sales, where creditors keep all the proceeds from a foreclosure sale after the owner fails to pay back taxes. Despite a 2023 U.S. Supreme Court decision in Tyler v. Hennepin County ruling these types of laws unconstitutional, ten states, including Arizona, have yet to change their laws.
What Is Home Equity Theft?
Home equity theft occurs when a government entity or private buyer sells your home over unpaid taxes, keeping the full sale price—even when the debt is a fraction of the home’s value. For example, if you owe $1,600 in taxes and your house sells for $400,000, you might think you would receive the remaining $398,400. In many states, however, that’s not the case. The creditor keeps the full amount, leaving you with nothing.
The practice is especially attractive to investment firms that specialize in purchasing tax liens. Banks and other institutions view tax liens as secure investments because the properties they acquire are often worth far more than the unpaid taxes. In Maricopa County, Arizona, more than 75% of tax liens between 2012 and 2021 were purchased by businesses, according to the Pacific Legal Foundation (PLF).
Searle’s case illustrates the brutal reality of this system. In 2005, she purchased a three-bedroom rental home for $255,000 in Gilbert, Arizona. The house’s current market value is estimated between $420,000 and $510,000, yet she risks losing all of that due to a $1,607 tax debt.
Supreme Court’s Ruling Offers Hope—But Only If States Act
The 2023 Supreme Court case involved a similar situation in Minnesota, where the court unanimously ruled that seizing the full value of a home over unpaid taxes violates the Fifth Amendment’s protection against illegal property seizure. Chief Justice John Roberts declared, “The taxpayer must render to Caesar what is Caesar’s, but no more.” However, the ruling only applies to the state in which the case originated unless similar cases are brought in other states.
Unfortunately, in Arizona and nine other states, no automatic mechanism exists to return excess proceeds from a tax lien sale. Lawyers call this a loophole that allows governments to legally steal home equity from property owners.
Searle is now working with lawyers from Mountain States Legal Foundation to challenge Arizona’s laws. They hope that her case will force the state to adopt new legislation similar to the one Minnesota was compelled to implement.
How Tax Lien Sales Work.
In Arizona, if property taxes are unpaid, the county treasurer can place a lien on the property. This lien is then sold at auction, with bidders competing to offer the lowest interest rate that they will charge the homeowner to redeem the lien. If the homeowner doesn’t pay the taxes within three years, the lienholder can foreclose and sell the property.
If a lien is not sold at auction, the state takes over the process. Interestingly, in cases where the state is the lienholder, it must return any excess proceeds to the property owner. However, when private investors like Arapaho LLC Tesco—which purchased the tax lien on Searle’s property—are involved, they can keep the full amount from the sale.
Searle’s predicament stemmed from a mix-up. Her son, Randy Searle, was responsible for paying the taxes on the Gilbert rental, but after a failed business venture, he missed the payments. By the time they realized, Arapaho had already initiated foreclosure on the property over unpaid taxes from 2015. Now, they face eviction.
The Catch-22 of Massachusetts.
Arizona isn’t the only state where property owners are fighting unjust tax lien laws. Alan DiPietro, a Massachusetts resident, is suing the town of Bolton for what his lawyers call an intentional attempt to take his land through similar tactics. DiPietro purchased 34 acres of land and planned to build homes, but the town prevented him from doing so by creating zoning issues and withholding permits.
Despite offering to pay the taxes, Bolton continued to block DiPietro’s attempts, and eventually confiscated his land, which is now worth $370,000, over a $60,000 tax debt. DiPietro’s lawsuit argues that the town violated both U.S. and Massachusetts law by seizing more than was owed.
States Need Legislative Reform.
The Supreme Court ruling in Tyler v. Hennepin County could open the door to change. But in states like Arizona and Massachusetts, new laws must be passed to ensure homeowners are protected. For now, lawmakers are slow to act. In Arizona, a bill allowing homeowners to petition courts for excess proceeds passed the state House in February 2024 but has yet to clear the Senate.
Meanwhile, Massachusetts has introduced similar legislation, but no significant progress has been made.
Homeowners like Searle and DiPietro, who are facing financial ruin due to these archaic laws, are counting on these reforms to restore fairness. Until then, they continue their legal battles, hoping that their efforts will spare others from losing their homes and life savings to unjust tax lien sales.
