Douglas County faces lawsuit over tax-forfeited properties

Mar. 25—DOUGLAS COUNTY — Douglas County is among many Wisconsin governmental entities being sued over property taken for unpaid taxes.

Every Wisconsin county, the state and the city of Milwaukee have been named as defendants in a lawsuit filed Feb. 17 in Waukesha County Circuit Court on behalf of residents who had their property taken for unpaid taxes but were denied proceeds of the sale that exceeded the taxes they owed between Jan. 1, 1989, and April 2, 2022.

"We were just following the law," said Mark Liebaert, Douglas County Board chairman.

"The Wisconsin state legislature implemented a statutory scheme to cause its political subdivisions, namely, the county defendants, to systematically and repeatedly take property unconstitutionally without just compensation," the lawsuit claims. "The Wisconsin judiciary approved of, and gave color of law to, the state of Wisconsin's unconstitutional scheme."

Prior to April 2, 2022, the law generally authorized the county to retain the net proceeds from the sale of tax-delinquent property unless the property was used by the former owner as a homestead at any time in the preceding five years, according to a Wisconsin Legislative Council memo about 2021 Wisconsin Act 216, which changed the law.

If the property had recently been used as a homestead, the county was required to notify the former owner that they may be entitled to a share of the proceeds. Unless the former owner requested payment within 60 days of receiving the notice, the former owner forfeited all claims to the proceeds.

Act 216 entitled former owners of tax-delinquent properties, regardless of use, to receive the proceeds of the sale minus the taxes owed and the cost of satisfying liens against the property at the time of the sale. The act required the county to pay the liens.

"Recognizing the illegality of these unconstitutional takings, in 2022, Wisconsin amended its statutes to acknowledge the rights of tax-foreclosed property owners to recover the surplus generated by tax foreclosure sales," the complaint states. "However, that legislative change was only made on a forward-looking basis."

Since the change in the law, Douglas County has kept a detailed log of all tax-foreclosed properties sold. But prior to 2022, the county didn't keep records of those, said County Clerk Kaci Lundgren.

In each of the eight cases cited — none of them naming Douglas County directly — the plaintiffs' properties were taken for unpaid taxes and were subsequently sold by the county where the property was located for more than the taxes owed. Once taxes were satisfied, the counties accused directly in the lawsuit pocketed between $20,000 and $417,000 from the sale of those properties, according to the complaint.

Attorneys from Zimmer & Rens LLC of Brookfield, Wisconsin, and Milberg Coleman Bryson Phillips and Grossman PLLC, a class action specialist with offices throughout the United States, are representing the plaintiffs named in the suit and all similarly situated individuals. They cite violations of the excessive fines and takings clauses of the Wisconsin and U.S. constitutions.

Liebaert worries the lawsuit could cost Douglas County millions unless the state steps up.

The state of Minnesota settled similar lawsuits last year for $109 million

after the U.S. Supreme Court ruled

in 2023 in the case of Geraldine Tyler, 94, of Minneapolis.

Tyler sued Hennepin County after the county sold her tax-forfeited condominium for $40,000 and kept the money. At the time, Tyler owed about $15,000 in unpaid property taxes, interest and fees.

The justices were unanimous in ruling that Hennepin County's retention of the excess value of Tyler's home above the taxes owed violated the takings clause of the Fifth Amendment of the U.S. Constitution. The court did not rule on Tyler's allegation that the county had also violated the excessive fines clause under the Eighth Amendment; however, Justices Neil Gorsuch and Ketanji Brown Jackson addressed the matter in a separate opinion.

"Economic penalties imposed to deter willful noncompliance with the law are fines by any other name," Gorsuch and Jackson wrote. "And the Constitution has something to say about them: They cannot be excessive."