Iowa's unpaid tax sale challenged as unconstitutional
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Alan Woods bought this Maynard home in 1999 after first living there as a renter, court filings show. Photo: Google maps
An Iowa homeowner's fight to keep his house over a $2,441 tax debt could test whether the state's tax-sale system unlawfully strips property owners of their home equity.
Why it matters: If successful, the lawsuit could have widespread implications for how governments collect tax debt and whether they can be compelled to compensate former owners.
How it works: Iowa counties hold annual tax sales to collect unpaid property taxes, issuing investors interest-bearing certificates until the owners pay.
- If the tax debt remains unpaid for more than one year and nine months, investors may begin the 90-day process to acquire a tax deed.
Stunning stat: Iowa has used tax sales to collect delinquent property taxes for more than 170 years.
State of play: Alan Woods, now 60, has lived in his Maynard home for over 35 years.
- The Ohio-based Equity Trust bought the tax-sale certificate for his property in 2022 and, last year, received the deed to his home, which was assessed at nearly $37,500.
Friction point: Woods, represented by Iowa Legal Aid, says in a lawsuit that Iowa's tax-sale laws violate the U.S. and Iowa constitutions by allowing private investors to take a property owner's equity beyond the amount owed.
- Equity Trust has filed a separate action that could result in Woods' eviction, but a judge has delayed it pending a ruling on his constitutional case.
What they're saying: Fayette County and Treasurer Kyle Jacobsen deny liability, saying in court documents that they were merely following state law and fulfilling mandatory duties.
- Iowa Department of Revenue Director Mary Mosiman says the state agency has no role and that legal doctrine generally shields the state government from being sued.
The other side: Iowans with limited income — often the elderly or those with disabilities — are commonly losing their most significant asset over modest tax debts, while investors can reap an unfair windfall, Woods' attorney, Todd Schmidt, tells Axios.
The big picture: Woods' case is part of a growing legal fight over "home equity theft" after the U.S. Supreme Court ruled in 2023 that a Minnesota county could not keep more than it was owed after seizing and selling a condo for unpaid taxes.
- Nebraska courts later applied that ruling to tax-deed cases involving private investors.
Zoom in: Iowa's next annual tax sale is set for June 15.
- Hundreds of delinquent tax sale entries are listed in Polk County.
The intrigue: An Iowa bill that didn't pass this year would have created a process for distributing "overplus" proceeds.
What we're watching: If Woods' case is successful, whether the excess equity would be reimbursed to him by private tax-sale investors, counties, the state, or a combination.