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In 2023, the U.S. Supreme Court ruled, in Tyler v. Hennepin County, that counties must have a process allowing former owners to recover the surplus proceeds following a foreclosure sale for unpaid property tax debt, even where state law allows counties to keep those funds. The court said that to do otherwise, would constitute a taking under the Fifth Amendment to the U.S. Constitution. Until recently, Oregon had a similar law allowing counties to retain any excess. Some parties have argued that retaining proceeds has the effect of depriving owners of the equity in their homes in cases of foreclosure, disproportionately impacting minorities.

In response, Oregon needed to revamp its laws to create a system for returning these funds. Changes were necessary, not only for foreclosures in the future, but also for potentially disgorging funds from past forfeitures as well. The 2024 Legislature passed HB 4056, which required the Department of Revenue to work with counties to refine this procedure; however, lacking urgency, the matter remained unresolved.

The 2025 Legislature responded by passing HB 2089, which details the procedure for properties that counties must follow. That includes a standardized notice, translated into multiple languages, that explains the foreclosure process and the right of redemption as well as information to access the unclaimed property website.

Counties must provide additional notice of any surplus within 60 days after which any claimant could make a claim for the surplus along with notices to cities and other state agencies, which may also have claims for proceeds.

The law goes on to detail the steps that counties must follow for selling property subject to a foreclosure judgment, depending on whether the property is residential or nonresidential. It includes obtaining appraisals, initial efforts to sell the property via a real estate agent, and auction with a minimum bid demand of two-thirds of the fair market value; only after exhausting these efforts can the county attempt to auction the property for the minimum amount necessary to cover the debt. Appraisal costs and real estate agent costs will absorb some of the profits. The amount of the surplus is determined within 60 days after the sale and any surplus must be deposited as unclaimed property with the Oregon State Treasury.

Importantly, HB 2089 took effect in September 2025, and this procedure applies to all property and claims where the claimant received a one-year redemption period notice on or after May 25, 2023.

However, this bill does not address how counties must deal with surplus profits recovered before 2023. According to partial data compiled by the Oregon Association of Counties, there are at least 172 properties that would have qualified for a refund since 2018, with some speculation that the cost owed for compensation would be somewhere around $50 million. Nothing in HB 2089 creates any kind of fund for repayment, suggesting that this debt may fall solely to counties.

With respect to the amount of the look-back period, the Court of Appeals ruling in Western States Land Reliance Trust v. Linn County issued last month was instructive. It is the first case dealing with the Tyler ruling in Oregon.

In 2008, after the plaintiff failed to pay property taxes, the county filed a foreclosure action and without any appearance by the plaintiff, a judgment was entered. And upon expiration of the two-year redemption period, the property’s title was forfeited to the county. In 2022, the county sold a portion of the property for $800,000. The county used these funds to pay off the $248,000 tax debt and retained the remaining proceeds.

In 2024, the plaintiff filed a Section 1983 claim arguing that under Tyler, the county’s retention of the surplus proceeds was a taking. In response, the county argued that unlike the statutory scheme at issue in Tyler, a property owner is entitled to file an answer in its defense at a foreclosure proceeding; there, a claimant could seek recovery of any profits.

Disagreeing with the county, the court concluded that the question was not whatever rights a claimant may have before the title passes but rather afterward, once title passed to the county and the redemption period expired, the taking occurred. Oregon statutory scheme that requires any excess funds remain with the county was squarely within the ambit of Tyler and therefore deemed unconstitutional.

Here, the case takes an interesting twist. The county put forth an alternative argument – that the takings claim was untimely. The statute of limitations for Section 1983 claims for constitutional violations is two years. This period starts as soon as there is a present cause of action upon which a party could seek relief. The county argued that the claim accrued in 2008, when the foreclosure judgment was entered. The plaintiff argued that its ability to file a takings claim accrued in 2022, when the county sold the property and took the surplus proceed for itself. The court found that claim accrued in 2010, which the redemption period ended, and the property was essentially deeded to the county. It was at that point that the plaintiff had an equitable interest in the surplus value and suffered the unconstitutional taking and therefore, the plaintiff’s claim was time-barred.

The result is that the county’s obligation to disgorge funds will extend back only two years to those cases where the right of redemption expired after 2023, lining up directly with the newly enacted distribution of proceeds procedure of HB 2089. This is likely a welcome result for cash-strapped counties that would have been challenged to locate claimants from years ago. But this leaves out entirely the individual homeowners who will be unable to recover from past wrongs.

Edward Sullivan is a retired practitioner of land use and municipal law with more than 50 years of experience. Contact him at [email protected].

Carrie Richter is an attorney specializing in land use and municipal law at Bateman Seidel. Contact her at 503-972-9903 or [email protected].

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the authors and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither author nor the 91ÊÓƵ guarantees the accuracy or completeness of any information published herein.