In Edmondson Community Organization, Inc. v. Mayor and City Council of Baltimore, the U.S. District Court for the District of Maryland recently applied the Supreme Court’s 2023 landmark decision in Tyler v. Hennepin County, No. 22-166 (May 25, 2023). [1]  The Court denied most of the defendants’ motions to dismiss. It held that the plaintiff plausibly alleged that Baltimore’s tax sale process violated the Fifth Amendment’s Takings Clause by failing to provide just compensation for surplus equity after tax foreclosure. The opinion is significant not only for Maryland municipalities and tax sale investors, but also for how it extends the reasoning of the Nebraska Supreme Court in Fair v. Continental Resources, Inc., No. S-21-074 (Neb. 2024). [2]  As in Fair, the Court in Edmondson held that private investors participating in tax sale systems can be considered “state actors” for purposes of liability for claims under the Takings Clause where they allegedly benefit from the unconstitutional deprivation of property rights without paying just compensation. 

While the Maryland federal court’s decision is not binding outside the State, it signals a growing willingness among lower courts to read Tyler expansively—reaching not just the public entities that conduct tax foreclosures, but also private actors who seek to profit from them.

Overview of Tyler v. Hennepin County

In 2023, the United States Supreme Court ruled in Tyler that the forfeiture of a Minnesota property for nonpayment of taxes resulted in a governmental taking without just compensation because the forced collection recovered more than what was owed to the government, to “Caesar” as the Court phrased it. The Supreme Court did not address who had to pay that just compensation because the only party involved in the unconstitutional taking was the county government. It also did not address the question of what amount of just compensation had to be paid in that case or whether the tax sale resulted in an excessive fine under the Eighth Amendment.   

Background: The Facts of Edmondson Community Organization

In Edmondson, a community organization and property owner sued the City of Baltimore, its Director of Finance, and several private tax lien purchasers, asserting that the City’s tax lien auction system deprived them of surplus equity without just compensation. The plaintiffs alleged that Baltimore’s sale process—under which the City auctions off tax liens to investors, who then foreclose and acquire deeds free of obligation to return excess value—violates the Takings Clause as interpreted in Tyler.

Judge Brendan A. Hurson’s 48-page decision denied dismissal on nearly every substantive ground. The Court held that:

• The Tax Injunction Act did not bar the claims because the plaintiffs were not challenging tax collection or the amount owed, but rather sought compensation for surplus equity—a property interest distinct from tax proceeds.
• The principle of comity likewise did not apply because the plaintiffs were not attacking Maryland’s tax assessment or collection system, but its post-collection failure to provide just compensation.
• The Rooker-Feldman and res judicata doctrines did not bar the action, because the plaintiffs were not challenging state court foreclosure judgments but rather alleged post-judgment injuries stemming from the uncompensated taking of surplus equity.
• The plaintiffs plausibly alleged that private tax sale purchasers were state actors for § 1983 purposes because they performed a public function—foreclosing and taking title under authority of state law—and benefited directly from the government’s deprivation of property.

Relevant here, the Court found that the plaintiffs’ claims tracked the constitutional injury recognized in Tyler and could proceed under § 1983 against the government actors and the private parties. [3]

The Fair v. Continental Resources Parallel

The Maryland decision tracks the reasoning of the Nebraska Supreme Court in Fair v. Continental Resources, which became the first state high court to impose liability on private tax sale investors under Tyler. There, the Court held that investors who acquired tax-deeded property without returning the owner’s surplus equity were “state actors” because their actions were inextricably linked with the statutory process by which the State transferred title. The investors, the Court said, “stood in the shoes of the State” when they accepted property beyond the tax debt owed.

Fair underscored that Tyler’s holding extends beyond governmental defendants. The Nebraska Supreme Court reasoned that when “a private entity obtains the benefits of a state-authorized taking, it may share the State’s constitutional obligations.” The Edmondson court adopted a nearly identical logic, allowing claims against both municipal and private defendants to proceed.

This convergence of reasoning across jurisdictions suggests that courts increasingly view tax sale investors as potential constitutional actors—a significant development for the tax lien industry.

Implications for Municipalities and Tax Sale Investors

The Edmondson ruling has several key implications:

• Expanded exposure under § 1983: Private tax sale investors may face liability for participating in state-sanctioned foreclosure processes that do not return surplus equity.
• Increased litigation risk for local governments: Cities that rely on tax lien sales as a revenue-recovery mechanism may face new federal suits seeking damages under the Takings Clause.
• Potential for class actions: Given the number of properties affected by these systems, plaintiffs’ lawyers may test the boundaries of Edmondson through broader filings.

Broader Context: Pung v. Isabella County

Shortly after the order in Edmondson, the United States Supreme Court again showed interest in these tax-sale issues, prompting the defendants to seek a stay of the case. In Pung v. Isabella County, the High Court granted certiorari to review a Michigan case involving similar questions about the return of surplus proceeds following tax foreclosure. [4]  Pung may provide the next major clarification on the scope of Tyler and the amount of liability, regardless of its application to private entities or governmental actors.  

The outcome in Pung could, therefore, shape how cases like Edmondson and Fair are interpreted nationwide.

Conclusion

The Edmondson order highlights ongoing legal challenges concerning tax lien foreclosures and surplus equity retention in light of the changing legal landscape. While the case draws heavily from Tyler, it also signals an expansion of potential liability that investors cannot ignore. The District Court’s ruling could expose tax sale bidders to additional liability over and above what they paid for the property at tax sale, potentially leading to another wave of litigation that tests the proportionality between tax debts and equity losses, or prompts the courts to second-guess the bidding market.

Who to Contact?

Matt Abee and Jonah Samples with the Nelson Mullins Tax Lien Resolution and Litigation Team are available to answer questions about how Edmondson Community Organization, Inc. v. Mayor and City Council of Baltimore may impact tax sale investors, servicers, and others in the industry. Please reach out to Nelson Mullins for more information about how you may be able to seek to address claims for just compensation as a part of your investment in tax liens.  

These materials have been prepared for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. As portions of this alert may have been created with the benefit of artificial intelligence or large-language models, Internet subscribers and online readers should not act upon this information without seeking professional counsel.

[1] See our related client alert about the Supreme Court’s opinion in Tyler here, along with our other client alerts discussing how state courts and legislatures are reacting to the opinion in Nebraska, Michigan, West Virginia, and elsewhere. 

[2] We previously discussed the Nebraska Supreme Court’s opinion here. 

[3] The District Court’s decision to allow the case to proceed to discovery stands in contrast to a decision from the Southern District of West Virginia earlier this year raising similar issues (but not addressed in the Edmondson order). There, the District Court dismissed Fifth and Eighth Amendment claims arising from a Mercer County, West Virginia, tax sale. That case is currently on appeal, though certain defendants have recently asked for it to be stayed. See Wright v. Hunt, No. 25-1402. 

[4] Our prior client alert about the Supreme Court’s case is available here.