Novi Times

The Michigan Supreme Court ruled last week that Oakland County and its treasurer are not entitled to the excess proceeds from the sale of tax-foreclosed properties that exceed the amount owed in delinquent unpaid taxes, interest, penalties and fees.

“We reject the defendants’ argument that no taking occurred in this case because the plaintiffs were afforded the minimal protections of due process,” wrote Justice David F. Viviano in the July 17 Michigan Supreme Court opinion.  “The U.S. and Michigan Constitutions dictate that before the government may take property for unpaid taxes, it must provide the property owner sufficient notice of the delinquency and foreclosure proceedings as well as an opportunity to contest those proceedings.”

Plaintiffs Uri Rafaeli and Andre Ohanessian filed an appeal, with the pro bono assistance of the Pacific Legal Foundation, following the lower trial court ruling that Oakland County and its treasurer, Andrew Meisner, did not take plaintiffs' properties after they had forfeited all the interest they held in them because they did not pay property taxes. The Court of Appeals affirmed and rejected the plaintiffs’ argument that the actions are part of an unconstitutional scam.

“Until the Michigan Supreme Court's recent decision, counties across Michigan used the foreclosure process to take everything from people who are financially struggling or mistakenly underpay their property taxes,” said Christina Martin, senior attorney with the Pacific Legal Foundation. “While everyone should pay their property taxes, failure to do so does not justify the government taking more than it is owed.”

According to media reports, Michigan is not alone in pocketing surplus proceeds.

Alabama, Arizona, Illinois, Indiana, Minnesota, Mississippi, Montana and Oregon also require a foreclosing governmental unit to withhold the foreclosure sale surplus from the property’s original owner.

“[These] dozen other states take homes and all of the owner's equity in that property when collecting on smaller property tax debts,” Martin told Novi Times. “Some of those states [Minnesota and Oregon] also profit at the expense of the owner. Laws like that create an incentive for government to foreclose on people over small debts. That means the government isn't likely to do a good job providing notice to people.”

However, in Michigan at least, House Bill 4219, introduced last year by State Rep. Gary Howell (R-Lapeer County) will require a foreclosing governmental unit to pay an equal amount of the excess to the original owner in instances in which sale of the property exceeds the minimum bid at auction if the property was owned and occupied as a principal residence before the judgment of foreclosure was entered.

“Private companies could never get away with such unfair practices, and for good reason,” said Martin in an interview. “The Michigan Supreme Court's decision means that Michigan's government will no longer be able to get away with such theft.”

The decision, according to Martin, sends a message nationally that this kind of abuse should not be tolerated anywhere in the United States.

“In Rafaeli's case, he owed only $8.41 in property taxes, plus about $275 in penalties, interest and fees,” she said. “That $275 was more than enough to compensate the government for waiting to receive the $8 and it was a very hefty penalty. Taking Uri's entire house, selling it, and keeping all the money was not necessary, nor was it fair.”