Take that, federal Sixth Circuit! Ohio Supremes reject “takings” claims against county tax foreclosures
The see-sawing of emotions among advocates for county land banking activities in Ohio continued this week, with hopes again rising upon a favorable decision by the Supreme Court of Ohio.
On April 4, 2023, the Court handed down its decision in State ex rel. US Bank Trust, N.A. v. Cuyahoga County1, which affirmed lower state appellate courts’ dismissals of U.S. Bank’s complaints in tax foreclosure cases adjudicated in Cuyahoga, Lucas and Summit Counties.
Let’s say at the outset that we hope the federal courts2 eventually adopt views of Ohio’s land banking statutes on par with Ohio’s own courts3: if a tax-delinquent property is adjudged as abandoned after all parties were properly notified and nobody responded or appealed, the property may be transferred directly to a county land bank, “and the owner gets nothing.”4 Period. End of analysis.
The Supreme Court of Ohio in State ex rel. US Bank Trust, N.A. reviewed three consolidated appeals from properties transferred directly to county land banks in 2017 and 2018. As to each property, the fair market value was more than the amounts of their respective tax liens. Under the Supreme Court of Ohio’s reasoning, contrary to the predominant view of the federal Sixth Circuit, the direct transfers of those properties did not constitute takings without just compensation under the Fifth Amendment’s Takings Clause of the U.S. Constitution.
What gives?
In the federal Sixth Circuit’s Hall decision, the appellate panel saw a taking in the Michigan county’s tax foreclosure process that did not give the owners any payment of the pent-up equity in the subject property (that is, the value of the transferred property in excess of the tax liens). The court took issue with the nature of Michigan’s “strict foreclosure” system – instead insisting that tax-delinquent property ought to be handled with foreclosure by sale elements. That is, to address the equitable title still held by the tax deadbeat owners, the Hall opinion called for a public sale of the subject property, with those owners entitled to any surplus proceeds.5
In the Supreme Court of Ohio’s view, on the other hand, this state’s tax foreclosure process afforded adequate remedies in the ordinary course of the law, therefore making unnecessary any requests for equitable remedies (like equitable title interests) by foreclosed properties’ owners and creditors. In fact, the Court viewed U.S. Bank as having “similar – indeed, more robust” remedies available to it in each of the underlying foreclosure cases so as to avoid a loss of property.6
Under Ohio law, county treasurers enforce tax liens on real property.7 And Ohio allows county treasurers to pursue an alternative process – invoking an alternative redemption period – to enforce tax liens on abandoned property, with such property directly transferred to county land banks without a sale.8 The Court viewed the array of statutory protections afforded to U.S. Bank during the tax foreclosure process as substantial, and collectively they served to negate its takings argument. Namely, U.S. Bank could have (i) redeemed the properties by paying what was due on the tax liens; (ii) transferred the foreclosure cases from BORs to common pleas courts; and (iii) appealed the BORs’ adjudications to common pleas courts (which such appeals allow de novo review, meaning U.S. Bank could have offered any number of grounds for appeal or raised new issues). US Bank did none of those things, and the Supreme Court of Ohio noticed: “US Bank had the ability to obtain complete relief… to avoid the alleged takings… by asserting its rights as allowed by statute”.9
1 2023-Ohio-1063, 2023 WL 2762497.
2 We are, of course, referring to the federal Sixth Circuit’s recent holding in a Michigan case, Hall v. Meisner, that declared aspects of that state’s tax foreclosure process amounted to a “taking” under the federal Constitution. (51 F.4th 185, 2022 WL 7366694, decided Oct. 13, 2022.) In an article summarizing that case, we looked askance at the Hall opinion’s long discourse on common law concepts of the relationship between debtors and creditors; the court didn’t discuss taxation in any substantive way in its holding. Employing the notion of equitable title to find a Michigan county took property without just compensation, the court expounded on debtor-creditor jurisprudence dating back to the 12th century. But what weight assigned to the government’s taxation powers or that the subject properties were foreclosed on longtime tax deadbeats? No mention by the court.
And we are referring to another Sixth Circuit opinion in an Ohio case, Harrison v. Montgomery County, Ohio, (997 F.3d 643, decided May 11, 2021), in which this same federal Court of Appeals allowed an owner of abandoned land to raise a federal “takings” argument under the Constitution once a property is deemed abandoned and titled to a county land bank.
3 The instant case provides further support to land banking activities, first given in June 2020, by the Supreme Court of Ohio’s decision in State Ex rel. Feltner v. Cuyahoga County Board of Revision. In Feltner, the Court rejected an activist’s effort to invalidate the state’s “expedited tax foreclosure” process, instead upholding (albeit on limited grounds) the practice by which county Boards of Revision (BOR) could directly transfer unoccupied, tax delinquent properties to county land banks. And we note the win-loss record in the line of lower state appellate decisions to the instant case was a solid 3-0 in favor of land banking activities.
4 State ex rel. US Bank Trust, N.A., at ¶ 1.
5 Hall at 193.
6 State ex rel. US Bank Trust, N.A., at ¶ 29.
7 Ohio Revised Code Section (“R.C.”) 323.25.
8 State ex rel. US Bank Trust, N.A., at ¶ 4.
9 State ex rel. US Bank Trust, N.A., at ¶ 30, citing State ex rel. Kerns v. Simmers, 153 Ohio St.3d 103, 2018-Ohio-256.
