Idaho House Local Government Committee unanimously moves home equity theft reform bill

On Tuesday, February 6, Mountain States Policy Center testified on House Bill 444, which would close a loophole in Idaho to stop home equity theft through gifting. Representative Jeff Ehlers asked me to testify before the local government committee on his bill. The House Local Government Committee then voted unanimously to advance the bill with a "do pass" recommendation.

 The following is the testimony I presented to the committee (click the image for the video):

"Good afternoon everyone. I want to thank Representative Ehlers for asking me to testify on HB 444 an important policy change. I am a Senior Policy Analyst for Mountain States Policy Center. We are a free market, independent think tank based in Idaho. We provide policy research and recommendations based to our region on facts – not emotion. Our mission is to empower the mountain states with free enterprise, individual liberty, and limited government.

So what is Home Equity Theft?

Imagine a homeowner who is struggling to makes end meets and then comes into debt of a few thousand dollars to the local government in a home they own with tens of thousands of dollars in equity. The local government decides to foreclose the property and so sells the home and pays the debt. But instead of returning the remainder of the equity after the debt is paid, the government keeps this for themselves. This is home equity theft.  

This practice is completely illegal for private lien holders to pursue. Private lien holders are required to foreclose on a property, pay the debts and return surplus property to the property owner. The shocking behavior of governments taking property without compensation has been used in 10 other states and the District of Columbia and nine other states (including Idaho) have access to a more limited scheme.

But as of May 2023, Home Equity Theft actions were deemed unconstitutional by a unanimous decision from the United States Supreme Court in Tyler v Hennepin County. Pacific Legal Foundation represented Geraldine Tyler, an elderly woman who had moved to a new living situation and whose tax bills went unpaid. Hennepin County, the local government applied taxes and fees to her property, of $15,000. Sold her home for $40,000 and then kept the remaining $25,000 for their budgets.

During the Supreme Court hearing, the defense admitted this principle would apply for a $5,000 debt on a $5 million property, just as easily as it applied to Tyler, giving local governments a windfall. Home Equity Theft violates the Takings Clause of the Fifth Amendment. Chief Justice Roberts stated in the opinion:

'The Takings Clause ‘was designed to bar Government from forcing some people alone to bear public burdens which, in all fairness and justice, should be borne by the public as a whole… A taxpayer who loses her $40,000 house to the State to fulfill a $15,000 tax debt has made a far greater contribution to the public than she owed. The taxpayer must render unto Caesar what is Caesar’s, but no more.'

The Supreme Court decision has only ruled this action unconstitutional but the laws remain on the books for many states. Idaho is one of those states. In Idaho, the current wording of the law permits local governments from foreclosing a property and instead of selling the property, they can gift it to another government entity and take the equity in the property for themselves.

HB 444 will remove the loophole from local governments. This is a good policy protecting property owners from unwanted government greed. It also protects local governments from future lawsuits. To learn more of the details we have recently published this study on the Home Equity Theft policies in Idaho, Montana, and Oregon."

MSPC is grateful and excited for the opportunity to contribute to the needed policy solutions around ending home equity theft in Idaho.