On Oct. 12, 2023, three people who lost their homes to foreclosure over unpaid property taxes filed a lawsuit against the counties that foreclosed on them in the U.S. District Court for the District of Oregon. The lawsuit demands refunds of any proceeds of foreclosure sales that exceeded plaintiffs’ debts to Lane, Multnomah, and Yamhill counties, and pertains to sales that took place as far back as May 25, 2017. It seeks to be recognized as a class action on behalf of all similarly situated former homeowners. Counties have been anticipating lawsuits like this one ever since news broke of the U.S. Supreme Court decision, Tyler v. Hennepin County.

On May 25, 2023, the high court ruled that a 94-year-old woman should have received a refund from Hennepin County, Minnesota after they foreclosed on her condo over $17,300 in unpaid property tax, interest, and penalties, and sold it for $40,000. Minnesota is among 14 states, including Oregon, where the foreclosure process provides for the delinquent property being forfeited in its entirety. Under Oregon law, counties retained the proceeds of foreclosure sales, even if the proceeds exceed the taxes, interest, and penalties that were owed. The State of Oregon had filed a “friend of the court” brief in the case, defending Hennepin County against the suit. The ruling held that such processes violate the Takings Clause of the Fifth Amendment to the U.S. Constitution.

AOC expects that soon every county in Oregon will be targeted by similar lawsuits over foreclosure sales, including sales that may have taken place many years ago. Preliminary discussions with CIS, who provides insurance to most Oregon counties, indicate that none of these losses are likely to be covered by insurance. Considering how tight county budgets are, fears are growing over how counties can possibly afford obligations associated with the lawsuits without making catastrophic cuts to critical services such as libraries, policing, and public health programs, or even going bankrupt. AOC is working with counties now to develop an estimate of county legal liability statewide, and are seeking state funding to assist counties with these costs. 

Counties in many other states have already seen similar lawsuits. Last year, Oakland County, Michigan settled a similar case for $38 million, and this spring, forty-three other Michigan counties agreed to settle a similar lawsuit, in an agreement estimated to cost tens of millions of dollars. 

Getting state help with these costs was identified by AOC membership as our top priority for the 2024 legislative session in the governance and revenue portfolio, along with limiting liability around future foreclosure sales surpluses and establishing new statewide guidelines for how to handle foreclosures. Most states have laws setting reasonable time limits for filing a claim over foreclosure surpluses, which helps counties avoid surprise claims impacting already-budgeted funds – Oregon does not.

There are some steps counties can take by themselves to limit liability associated with future foreclosure sales, but for every one of Oregon’s 36 counties to develop and enact their own ordinance will be a costly exercise, and having a patchwork of varying approaches across Oregon doesn’t make any sense.

At their September meeting, the AOC Governance and Revenue Steering Committee convened a workgroup to develop a legislative proposal for 2024 that addresses these issues. A group of about a dozen county staff who have legal or property management expertise met on Sept. 18, with Marion County Assistant Legal Counsel Scott Norris leading the group in efforts to craft a draft proposal. AOC is working hard to secure introduction of the proposal as a bill for consideration in the 2024 legislative session. 

Contributed by: Michael Burdick | AOC legislative affairs manager