Think Out Loud

US Supreme Court rulings leads to class action lawsuit against counties selling foreclosed homes

By Rolando Hernandez (OPB)
Nov. 1, 2023 2 a.m.

Broadcast: Tuesday, Oct. 31

In May, the U.S. Supreme Court issued a unanimous ruling blocking states from keeping surplus funds from the sale of foreclosed homes. Now, three Oregonians are a part of a class action lawsuit against Multnomah, Yamhill and Lane counties. Nadia Dahab is a partner with Sugerman Dahab and is representing some of the plaintiffs in the suit. She joins us to share more on the Court ruling and its impacts.


This transcript was created by a computer and edited by a volunteer.

Dave Miller:  From the Gert Boyle Studio at OPB, this is Think Out Loud. I’m Dave Miller. In May, the U.S. Supreme Court issued a unanimous ruling blocking governments from keeping surplus funds from the sale of foreclosed homes. Meaning, if someone owes say $10,000 in taxes and fees, but a county takes in $100,000 from the sale of their home, the county cannot keep that extra $90K. Now, three Oregonians are a part of a class action lawsuit against Multnomah, Yamhill, and Lane Counties. They say that collectively they are owed more than $100,000. Nadia Dahab is a partner with the law firm Sugerman Dahab, which has brought the suit. She joins us now to talk about it. Welcome to the show.

Nadia Dahab: Thanks, Dave. Thanks for having me.

Miller: So you filed the suit on behalf of your Oregon clients because of this unanimous U.S. Supreme Court ruling. What did the justices say in Tyler v. Hennepin County?

DahabTyler v. Hennepin County was a case out of a district court in Minnesota. And in that case, the Supreme Court made it pretty clear that when a county forecloses on an individual property owner’s home because that property owner owes a tax debt, the county can recover the amount of the debt. For example, if the property owner owes, in that case it was, $15,000 in taxes and interest and penalties. But the county cannot keep any surplus proceeds that it realizes in the foreclosure sale. In that case, Hennepin County sold Ms. Tyler’s property for $40,000 and kept the $25,000 that was the surplus in excess of her $15,000 tax debt.

Miller: How common is this around the country?

DahabYou know, there are several states across the country that do not have a mechanism for returning surplus proceeds to property owners. It’s not the case in every state. Some states do have a statutory mechanism for the public body, the counties, to get the money back and they have prohibitions on the books saying that the county can’t keep the excess proceeds. But there are 10 or 15 states across the country, at least, that don’t have that mechanism. And in fact, sometimes, as is the case in Oregon, they have a statute on the books that provides that the surplus proceeds don’t go back to the property owner and that instead they get distributed into the county’s general fund for other purposes.

Miller: What did happen to the clients that you represent?

DahabAll three of the clients that we represent had tax debts owed to their counties - to Yamhill, Lane, and Multnomah County. These tax debts were in varying amounts. Some of them were $8,000 some of them were higher, but all of them had their properties foreclosed on by the counties. And all of them, in the foreclosure sale, realized proceeds far in excess of the tax debt that the individual owed.

Martin Lynch, for example, is the plaintiff out of Lane County. And in his case, the County foreclosed on his property and the surplus proceeds from that foreclosure sale were on the order of $80,000 or $85,000. And Mr. Lynch never got those surplus proceeds back which, we now know in light of the Supreme Court’s decision, was an unconstitutional taking and he’s entitled to that money back.

Miller: And so just to be clear that your clients, people we’re talking about, they lost both a place to live and whatever equity they had built up in their homes?


Dahab: Exactly, what is so important and so impactful about this decision, Dave, is that in so many people’s lives, their home is the most important, most significant purchase that they’ll ever make. And by the law that Oregon has on the books, when a county forecloses on that property, all the home equity that those individuals have built up is confiscated by the county. It never gets back to them. And so the impact is, in that respect, profound because they not only are already in an economically vulnerable position, having their property foreclosed on, but then they lose the equity that they’ve built up in their home.

Miller: These retained proceeds - it seems like such a technical word - but where do they go? What do counties do with this money under state law?

Dahab: The statute directs the counties to retain the money and then distribute the proceeds into the general fund. And then the general fund can be used in sometimes a discretionary and sometimes a mandatory way. So it’s county by county and it really depends on where the county’s needs are, in terms of funding. But the statute [allows] some of those funds to be used in a very discretionary manner depending on what the county’s budget or the county’s funding, where that’s going at any given time.

Miller: The Multnomah County assessor told the Oregonian recently that they intend to fully comply with the Supreme Court, even though there are some items that are not clear in what are considered retained proceeds. Do you know what he’s referring to, where the lack of clarity could be here? The example that we’ve been talking about, it seems relatively clear. Somebody owes X amount in taxes and their fees have been added on and their house sells for Y amount. It just seems like you would just subtract them. And that’s what’s been retained. Where is it more complicated?

DahabYou know, Dave, to be honest, I don’t know. I think, in our view, we read the Supreme Court’s decision in the way that you just described, such that the difference between the tax debt of the property owner and the surplus proceeds of the foreclosure sale would be the amount that the county has retained under the currently unconstitutional statute and should be returned to the property owner.

So we view it as pretty clear. We do think that there’s a way, through this case, to potentially work with the counties and develop some sort of statewide mechanism that, going forward, can be used to make sure that this doesn’t happen to Oregonians. But we think the calculation, in terms of the amount owed back to the class members here and to the property owners, is actually pretty clear.

Miller: So far, we’re just talking about this lawsuit, as I understand it now, as a class action with three members. But who else is there? And how much money potentially are we talking about?

DahabIt’s a good question but I don’t think we know that right now. We know that the class is potentially quite large, given what we’ve seen in individual county records, in terms of how often these foreclosure sales take place. Every county’s records are a little bit different. So it’s a little bit difficult to know precisely, now, how many people are in the class, how many homes have been foreclosed and for how many of those foreclosure sales, the county has realized a surplus from the proceeds in the past six years. [That] is the time period that we’re dealing with in this complaint. So we don’t quite know exactly how many people and how much money is at issue. But we expect it to be significant, given the time period at issue and the number of foreclosure sales that we think may have happened in the last six years.

Miller: We’re in this position as a state because, as you noted, of a provision of state law. Are lawmakers talking about a fix to put Oregon statute in line with the Supreme Court ruling?

Dahab: I hope so. I don’t know that we know that right now. I think in the last session there was an amendment proposed to the same statute that did not fix the problem that we now know, based on the Supreme Court decision, exists. That amendment was proposed before the Hennepin County decision came down. So we certainly expect that in the next legislative session some amendment will be proposed to bring the statute in line with the Supreme Court’s decision going forward.

Miller: Nadia, thanks very much.

DahabThank you, Dave.

Miller: Nadia Dahab is a partner at Sugerman Dahab, a law firm that is representing three Oregonians. All of them had their homes foreclosed and then their respective counties took the entire proceeds from the sale of those homes, which in many cases were tens of thousands of dollars more than the money the individuals owed in taxes in the first place.

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