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Lawmakers should put home equity theft to the curb

Many Coloradans spend a lifetime building up equity in their home, creating a financial cushion that is often the sum of their life savings. Few people know that those savings can be unfairly confiscated by the government in the event of a property foreclosure. It’s time for the state Legislature to step up and ban home equity theft.

When homeowners fall on hard times and get behind in taxes, local government may file liens against the property. If those back taxes aren’t paid over a period of years, the property may be foreclosed on and sold.

Common sense and fairness would dictate that the government would recover the taxes and fees it is owed, but the homeowner would be able to keep the remaining equity once all debts are satisfied. But, until a U.S. Supreme Court decision last year, government was permitted to keep all the proceeds, often well above the tax debt.

That’s theft. And the Supreme Court ruled that it is unconstitutional with Chief Justice Roberts crystallizing the issue. “The taxpayer must render unto Caesar what is Caesar’s – but no more,” he wrote, playing a well-known Bible passage.

Currently, state law allows for all the equity to be retained, and it is up to the Colorado Legislature to step in and bring our laws into line with the Supreme Court decision.

Home equity theft is a significant problem, here in Colorado and across the country. According to the American Property Owners Alliance, which tracks this issue closely, more than 8,600 U.S. homes were affected between 2014 and 2021 with a loss of $780 million in home equity savings. In Colorado, losses are estimated at a minimum of $45 million statewide.

On average, homeowners lose 97% of their equity, according to the alliance’s report.

Home equity theft presents a particularly pernicious threat for Colorado seniors. Many older people count on the equity in their homes to fund their future or provide a legacy to pass on to their children and grandchildren. For a person’s entire nest egg to be put at risk of confiscation if their property must be sold to satisfy a lien could be financially devastating.

Here’s how the process would be reformed.

Under the current process, when homeowners are behind in a tax debt to local government, they can be provided a period of six months or more on average to pay those back taxes. But if a property must be sold at foreclosure, any and all debts to government should, of course, be satisfied. But the remaining equity should be returned to the homeowner, not kept by the government.

Such straightforward reform legislation should be a layup for the Colorado Legislature, one that lawmakers in both parties should eagerly embrace. Whether one is a Democrat or Republican, no elected official should accept the government taking from Coloradans what it is not owed, or turning a profit on a property sale at the expense of seizing the life savings of families who fell on hard times.

In this era of deep partisan divisions, it is rare to find an issue where all 100 legislators and the governor can unite and enact a reform that will benefit Coloradans across the state. Removing the threat of home equity theft is a promising opportunity for our lawmakers to come together on behalf of homeowners across our state.

Michael Fields is president of Advance Colorado, a nonprofit dedicated to strong and sustainable policy solutions in fiscal responsibility and transparency, limited government, free enterprise, lower taxes, strong public safety, and an accountable education system. Fields writes Opinion columns for The Colorado Sun, a bipartisan nonprofit news organization based in Denver.