Several individuals are behind a Wisconsin class action lawsuit retroactively seeking recourse after government agencies kept surplus proceeds from sales of their tax-foreclosed former properties, an act the Supreme Court has previously deemed unconstitutional.
In the case filed in the Eastern District federal court of Wisconsin, attorneys representing the class allege that local jurisdictions unlawfully garnered hundreds of millions of surplus dollars in equity that belonged to the original homeowners after the properties were sold. The suit includes more than two decades-worth of foreclosure transactions.
Listed as defendants are the state of Wisconsin, all 72 of its counties and the city of Milwaukee.
While state laws were rewritten in 2022 forbidding governments to retain surpluses from tax-foreclosure sales above the unpaid amount, the decision “came too late for many former Wisconsin property owners and their descendants, whose funds remain seized without recourse,” lawyers representing the proposed class said.
The state “has not provided any mechanism through which plaintiffs and the class members may recover just compensation for the surplus funds that defendants took prior to April 2, 2022,” the suit stated.
Instances of sales proceeds retained by local government offices go back as far as January 1989, the attorneys also noted, describing the actions as “a trespass” on plaintiffs’ properties.
The suit is reminiscent of the “home equity theft” case Tyler v. Hennepin County, in which the Supreme Court found that local officials in Minnesota had unlawfully kept excess amounts after a sale. The plaintiff in that lawsuit first filed the claim in 2020, two years before Wisconsin’s law went into effect, following the foreclosure of a condominium unit due to nonpayment of an approximate $15,000 tax lien. Hennepin County later sold the unit for $40,000.
Although the case was initially dismissed, the Supreme Court agreed to hear arguments on appeal and later ruled in favor of the former condo owner with a unanimous decision in 2023, deeming it unconstitutional for local governments to keep the surplus funds from a tax-foreclosure sale.
The Minnesota plaintiff’s attorneys estimated more than $860 million in surplus proceeds have been retained by states and counties across the country.
In the Wisconsin filing, legal counsel for the plaintiff is seeking relief of “equitable restitution” or to place “members of the class in the financial position they would have been in had there been no takings or other unlawful conduct.”
Last week, the Supreme Court declined to review a 2024 judgment in a Florida case, which would have had broader implications for how Tyler v. Hennepin might be interpreted. The Florida suit involved a homeowner, who claimed his property had been undervalued at the time of the foreclosure sale, thereby denying him any gains.
