Foreclosure Equity Theft Loophole

The WRA supports requiring counties to sell property and distribute any net proceeds to the former owner after acquiring the property through a property tax foreclosure.

In 2023, the U.S. Supreme Court unanimously ruled in Tyler v. Hennepin County that efforts by counties to retain net proceeds from foreclosure sales constitute an unconstitutional “taking.” Wisconsin law is generally consistent with the Court’s ruling after the passage of 2021 Wis. Act 216, which specifies that former property owners are entitled to the surplus proceeds following a sale of tax-deeded property at auction.
Wisconsin law, however, contains a potential loophole because it does not expressly require the county to sell tax-deeded property. Rather, surplus proceeds are due to the former owner only if the county decides to sell the property. Otherwise, the county can keep the property and use it for any purpose without providing just compensation to the former owner.
This legislation is aimed at closing the potential loophole by requiring counties to sell a property after foreclosing upon it. Requiring counties to sell property after foreclosure will help return any remaining equity in the property back to the former owner and ensure that counties are not engaging in an unconstitutional “taking,” as established in the Tyler case.

  • Keeping property with a value greater than the tax debt owed is an unconstitutional taking.  
    • In Tyler, the U.S. Supreme Court held that an unconstitutional “taking” occurs when government keeps the remaining equity in a person’s property after a foreclosure. 
    • While Wisconsin law does not explicitly require a county to sell the property after acquiring title through foreclosure, such a practice would violate the constitutional principles recognized in Tyler if the value of the property exceeded the tax debt owed to the county. 
  • Foreclosure equity theft magnifies financial hardships.  
    • Allowing counties to keep property with a value greater than the tax debt owed would cause further financial hardship to families who lost their properties.  
    • Keeping the equity in an owner’s property makes such financial hardships even worse and could permanently prevent the owner from financial recovery.  
  • Counties should not be given the option to keep someone’s property. 
    • Under current law, counties have unilateral authority to decide whether to sell or keep someone’s property acquired through property tax foreclosure.   
    • Property owners should not have to rely on bureaucratic goodwill to receive the compensation to which they are constitutionally entitled. 
    • Allowing counties to profit by keeping property with a value greater than the tax debt owed would be a financial windfall for the county at the expense of the affected property owner.