CA2: The Harm In Home Equity Theft Takings Is Government's Retention Of Surplus Equity

By noemailnoemail-org-robert-thomas-inversecondemn on May 8, 2025

A brief, but important, decision from the U.S. Court of Appeals for the Second Circuit.

In Sikorsky v. City of Newbergh, No. 23-1171 (May 2, 2025), the court held that the plaintiff adequately pleaded a regulatory takings claim which was based on Tyler v. Hennepin County, where the U.S. Supreme Court held that a government violates the Fifth Amendment if it seizes and liquidates property in order to satisfy the owner’s tax debt, but “keeps the change” and retains any proceeds in excess of the tax debt.

Here, Sikorsky purchased a home but failed to pay $92,786 in taxes, and the city eventually foreclosed. The city sold the home for $250,000 more than Sikorsky owed in taxes, “but refuses to give him the surplus.” Slip op. at 3. He sued, and the district court dismissed:

Two months after Tyler was decided—and seemingly without reference to it—the District Court granted the defendants’ motion to dismiss. Sikorsky, pro se, timely appealed from the judgment. While Sikorsky’s appeal was pending, and in response to Tyler, New York enacted laws that provide procedures for certain claimants to recoup surplus equity from foreclosure sales. N.Y. Real Prop. Tax Law § 1197(1); 2024 N.Y. Sess. Laws ch. 55, pt. BB § 19(1)(a), (c).

Slip op. at 5-6.

The court concluded that the post-Tyler statute did not provide Sikorsky a procedure by which to claim the surplus (and thus avoid the taking) because it only applied to cases where the home was sold after the date the Supreme Court issued the Tyler opinion (May 25, 2024). Here, the home was sold before that date.

The court also held that the complaint stated a takings claim and rejected the city’s res judicata argument that two earlier suits precluded Sikorsky from asserting a takings claim now. This claim, the court held, was not ripe at the time of the earlier cases because the city had not yet wrongfully kept the surplus. Thus, his takings claim only accrued and ripened, when the city withheld the surplus:

The “general rule” is “that claims are ripe once a cause of action accrues.” Somoza v. N.Y. City Dep’t of Educ., 538 F.3d 106, 115 (2d Cir. 2008). A “claim accrues when the plaintiff knows or has reason to know of the harm.” Eagleston v. Guido, 41 F.3d 865, 871 (2d Cir. 1994) (quotation marks omitted).

This Court has yet to consider when a claim for surplus equity under Tyler accrues. We hold that the “harm” at issue is the municipality’s retention of surplus equity. As the Tyler court explained, “‘[t]o withhold the surplus from the owner would be to violate the Fifth Amendment.’” Tyler, 598 U.S. at 643 (quoting United States v. Lawton, 110 U.S. 146, 150 (1884))). In this case, that harm did not occur until the City received (and began to “retain”) the money from the sale of the property, which Sikorsky alleges occurred in June 2021. Sikorsky commenced his first state court action against the City in 2017 and his second in March 2021. Thus, both of Sikorsky’s state court actions began before his claim was ripe. Claim preclusion does not bar a claim that could not have been brought in the earlier action, so it does not bar Sikorsky’s claim here.