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Kenneth Michael Sikorsky fell behind on his property taxes, and in 2012, the city of Newburgh, NY, foreclosed on his home.
He brokered a deal to buy it back by paying off his outstanding debt in installments. But when he missed these payments, the city canceled the agreement and found a new buyer—someone willing to pay more than three times what Sikorsky owed. When the sale closed in summer 2021 for $350,500, Sikorsky didn’t see a cent. The city kept the entire $258,000 in surplus profit and all of his hard-earned home equity.
Sikorsky is far from alone. Across the country, homeowners have fallen behind on property taxes only to lose their homes and all of the equity they had built in them. And while a landmark Supreme Court decision in 2023 (Tyler v. Hennepin County) declared this practice unconstitutional, it hasn’t stopped.
“Five states are feigning compliance with Tyler by requiring owners well before any tax sale to preserve their right to any surplus proceeds from any future sale,” says Christina Martin, a lawyer with the Pacific Legal Foundation who is fighting home equity theft. “Failure to properly preserve your rights means the government gets to keep your money.”
The court ruled this practice unconstitutional. So why is it still happening?
The Supreme Court ruling that should have changed everything
Years before Sikorsky, Geraldine Tyler was living a similar reality in Minneapolis. In 2015, Hennepin County seized and foreclosed on her condo after she fell behind on her property taxes by $2,300. What made her debt so out of reach wasn’t just the property tax bills she missed, but the additional fees, penalties, and interest that brought her bill to nearly $15,000.
Her condo had been valued at $93,000, but the county sold it for just $40,000—far less than its market value and far more than her debt and additional penalties. And yet, it was the county, not Tyler, that pocketed the additional $25,000 in profit from the sale.
She sued the county, not for seizing her home or foreclosing on it, but for stealing her equity. And in 2023, the Supreme Court ruled in her favor, with Chief Justice John Roberts writing, “a taxpayer must render unto Caesar what is Caesar’s, but no more.”
What states did next
In the wake of the Tyler ruling, more than a dozen states moved quickly to update their tax foreclosure laws. Many of these reforms were designed to ensure that when a property is seized and sold, any remaining equity is returned to the former homeowner, just as the Supreme Court mandated.
But other steps, according to Martin and other legal experts, are little more than legal gymnastics, designed to appear compliant while still allowing governments to pocket the profits.
“In Michigan,” explains Martin, “less than 5% of owners navigate the claim process properly and are able to get payment for the excess value of the property taken from them.”
In five states in particular, laws passed after Tyler contain provisions that make it extraordinarily difficult for homeowners to reclaim the equity they’re owed. These statutes often require owners to “preserve” their right to surplus funds long before a sale happens, or else forfeit it entirely.
In practice, that means missing a deadline—or simply being unaware one exists—can cost homeowners tens or hundreds of thousands of dollars in lost equity.
States that still have work-arounds
Here’s a closer look at those five states, plus one other, where homeowners face the highest risk of losing their equity in a property tax foreclosure even after the Supreme Court ruling in Tyler.
New York
“New York is one of the five states that is giving owners an unnecessarily short deadline to preserve a future right to be paid for their home equity,” says Martin.
Under the state’s current law, property owners must proactively demand compensation to preserve their claim to any surplus equity. If they don’t, the government can transfer or take the property without even selling it—allowing a new owner to inherit all of the former homeowner’s equity, free and clear.
Even when a sale does happen, the burden remains on the original owner to file a claim to recover any excess proceeds, adding another layer of red tape that can easily trip up struggling homeowners.
Michigan
In Michigan, homeowners must jump through a series of hoops to recover their equity—and the process begins before they even know whether there will be anything to recover.
To preserve their right to surplus funds, property owners must submit a notarized form before their home is auctioned off. But at that stage, it’s impossible to know whether the sale will generate any profit, leaving many homeowners confused or unsure if the effort is worth it.
Even if the form is filed correctly and accepted, the process is far from over. Owners must then file a motion, appear in court, secure a favorable judgment, and pay a 5% sales commission on whatever equity they recover.
It’s no wonder that barely 5% of homeowners complete the process successfully. For those who don’t, the consequences can be devastating.
Chelsea Koetter lost her home over a $3,863 tax debt. Manistee County later sold it and kept the $102,000 profit because she filed her claim just eight days too late.
New Jersey
In New Jersey, the burden falls on homeowners to protect their equity before they even know how much is at stake. To claim any surplus from a tax foreclosure, property owners must proactively request a judicial sale or internet auction after a lien holder initiates foreclosure but before the court issues a final judgment.
That window is narrow, and the process requires filing formal documents with the court. Miss it, and the homeowner forfeits any right to the surplus proceeds, no matter how much profit the sale generates.
Alabama
In Alabama, homeowners must formally request that their property be sold before the redemption period ends, often without clear notice that this step is required. If they don’t, the property can be forfeited to the state or a private lien holder, who might keep it or sell it and retain the full proceeds.
This means that, in addition to navigating Alabama’s already complicated tax foreclosure and redemption process, homeowners must take extra legal action (often without guidance) just to have a chance at recovering any of their equity.
Arizona
In 2024, the state enacted a law intended to prevent equity theft. Although the system appears to protect homeowners in theory, it places the burden entirely on them. To preserve their rights, property owners must request a sale during the foreclosure process. The court then decides whether a sale is likely to yield more than $2,500 in surplus value beyond taxes and fees.
If the owner fails to make this request or the court determines the equity threshold won’t be met, the property can be transferred without a sale, and any remaining equity may be lost to the government or private investors.
Illinois
In a sixth state, Illinois, equity theft is still practiced in plain sight without the cover of burdensome processes. Counties sell tax liens on homes with unpaid property taxes to private investors. Once a lien is sold to an investor, the homeowner has 2.5 years to pay what they owe and reclaim their property. If they don’t, the investor can take full ownership and keep any profit from selling the home later.
Who’s being harmed
The people most at risk of losing their equity aren’t speculators or negligent landlords—they’re often elderly, disabled, or low-income homeowners who’ve fallen behind on their taxes for reasons as simple as a medical bill, a job loss, or a missed notice in the mail.
Once a tax debt starts growing with penalties, fees, and interest added on, it can quickly snowball into something unmanageable. Homeowners struggling to catch up often have no idea they’re also on the clock to file the right form, make a formal request, or appear in court before a sale happens—all just to claim money that rightfully belongs to them.
Sikorsky is one of the few homeowners getting the chance to challenge that system in court. After the city foreclosed on his home and kept the profit from the sale, Sikorsky filed a lawsuit under the Fifth Amendment’s Takings Clause. Although a lower court initially dismissed his claim, the 2nd Circuit Court of Appeals reversed that decision in 2025, ruling that he had successfully stated a claim and allowing the case to move forward.
His case could now become a pivotal test of whether post-Tyler protections have teeth—or, as critics argue, states are simply reshaping the same old practices in legally compliant terms.
As more homeowners push back, pressure is growing for states to fix the systems that continue to cost families not just their homes but also their life savings.