Michigan Supreme Court Rules Against Overreaching County Tax Collector

July 21, 2020 Updated: July 21, 2020

The Michigan Supreme Court ruled that counties may not keep for themselves as a windfall funds left over from the sale of real property for unpaid taxes, an unconstitutional practice the property owner’s lawyers denounce, calling it “home equity theft.”

According to the Pacific Legal Foundation (PLF), a public interest law firm headquartered in Sacramento, California, that represented the property owner, the decision may be good news for property owners in Michigan, but there are still 12 other states in the country that allow similar practices, including Arizona, Colorado, Massachusetts, and Nebraska.

The U.S. Constitution forbids excessive fines and the unauthorized taking of property.

Michigan “twisted the foreclosure process into nothing more than government-sanctioned theft, allowing officials to seize and sell the property of delinquent taxpayers—and keep all proceeds above what’s needed to pay off the debt,” according to a PLF summary.

“Michigan law allows bureaucrats to kick people out of their homes and steal their life savings to collect on debts as small as $8. This is neither fair nor constitutional. Predatory government foreclosure particularly threatens the elderly, sick, and people in economic distress.”

“No one in Michigan should lose the entire equity in their home or land for falling behind on their property taxes,” said Christina M. Martin, a PLF staff attorney.

“We will continue the fight to help other vast numbers of people whose nest eggs have been robbed by this abuse of tax foreclosure law. [The] decision sends a message across the country that this kind of abuse should not be tolerated in the United States any longer.

“This decision will protect people across Michigan by prohibiting county governments from stealing from struggling property owners.”

According to the Michigan Supreme Court’s ruling July 17, in the case cited as Rafaeli LLC v. Oakland County, the plaintiff Rafaeli LLC owed $8.41 in unpaid property taxes from 2011, which grew to $285.81 after interest, penalties, and fees. Oakland County foreclosed on Rafaeli’s property for the delinquency, selling it at auction for $24,500, and keeping all the sale proceeds in excess of the taxes, interest, penalties, and fees.

Rafaeli had bought a rental property in Southfield for $60,000 in August 2011, but failed to remit the 2011 taxes due on the property in the amount of $536.24. Rafaeli sent a payment to the county in August 2012, but the payment fell short of the amount owed. He sent another payment in January 2013 but still owed $8.41, plus $2.26 in interest, penalties, and fees. The delinquency was never paid, and on March 1 that year, the property was forfeited to the county.

A second plaintiff, Andre Ohanessian, owed about $6,000 in unpaid taxes, interest, penalties, and fees from 2011. His property was auctioned off for $82,000, and the county retained the entire sale price.

The issue in this case, the court stated, is whether the county has “committed an unconstitutional taking by retaining the surplus proceeds from the tax-foreclosure sale of Rafaeli’s and Ohanessian’s … properties that exceed the amount plaintiffs owed in unpaid delinquent taxes, interest, penalties, and fees under the General Property Tax Act.”

The court held that “defendants’ retention of those surplus proceeds is an unconstitutional taking without just compensation” under the Michigan state constitution, and remanded the case “to the Oakland Circuit Court for proceedings consistent with this opinion.”

“There is, in fact, a traditional right for a debtor that traces all the way back to England and colonial days … and fortunately, the Michigan Supreme Court recognized that,” Martin told The Epoch Times in an interview.

“The government can seize your property to pay a debt, but it does so subject to the traditional requirement that it sell the property and that it refund the extra profits to the former owner.

“This decision will end the practice in Michigan, perhaps the worst state in the country on the topic until now, and it will hopefully also send a message to those dozen other states, because if they don’t [change their ways], Pacific Legal Foundation is coming for them. We want to end this practice in the United States.”

County financial officials didn’t immediately respond to a request by The Epoch Times for comment.