In an important case, the Supreme Court held in Tyler v. Hennepin County, 143 S.Ct. 1369 (2023), that it violates the takings clause for a municipality to foreclose on property for nonpayment of property taxes and to retain the value of the property that exceeds the unpaid taxes (with costs). The purpose of a tax foreclosure is to pay off the taxes owed. The equity in the property beyond that belongs to the homeowner (and/or the lender).
In one sense, the ruling is unexceptional and tracks the goals of tax foreclosure laws (and other foreclosure laws in general). In a different sense, the opinion goes beyond other cases that have been held to be takings and could have significant consequences for mortgage foreclosures that are effected through court proceedings (judicial foreclosures). Most foreclosures do not result in paying of fair market value for the property, thereby (in my view, improperly) shifting the equity from the homeowner to the lender. It is not clear whether Tyler will be extended to regulate private foreclosures that use judicial proceedings. And even private foreclosures may result in court proceedings if the owner refused to move out and the lender that buys the property at foreclosure resorts to eviction proceedings to recover possession from the borrower/owner whose title has been lost through foreclosure. Whether Tyler has consequences for ordinary foreclosures will be interesting to find out.