Recently, a federal judge excoriated a cadre of Michigan counties for effectively stealing money from their own citizens by foreclosing and auctioning tax-indebted properties and keeping all the profits.
These residents tended to be elderly, and the takings — well beyond the taxes owed — often represented their life savings. Former property owners have been in litigation to recover their home equity for well over a decade.
In an unpublished decision attached to the settlement of one such class action lawsuit against the counties, challenging confiscations under the law as it existed prior to 2020, Judge Raymond Kethledge of the U.S. Sixth Circuit Court of Appeals noted in a concurring opinion that for many citizens who lost both their homes and their just compensation, “the economic harm inflicted by these takings was catastrophic.”
The homeowners’ now-settled lawsuit began in 2014, before Michigan’s standard practice of confiscating entire homes to settle small tax debts was declared unconstitutional by the Michigan Supreme Court in Rafaeli, LLC v. Oakland County (2020), a case involving confiscation of an entire home to pay a mere $8 property tax debt. This foreshadowed the United States Supreme Court’s decision applying federal constitutional law in Tyler v. Hennepin County (2023). The Tyler Court held that governments could not use tax debts as a “toehold” to take the entire equity in someone’s foreclosed home.
The government could easily satisfy this constitutional requirement by deducting what it is owed and handing over the rest to the owner. The government already knows the former owner’s identity and address because it has been sending notices related to the unpaid property taxes and foreclosure. How hard would it be just to cut a check and mail it?
But after Rafaeli, the Michigan legislature responded by enacting an unreasonable law — backed by the Michigan Association of County Treasurers — that established a complicated and counterintuitive process for former owners to recover their surplus proceeds. Critical to this process is special service of a notarized “notice of claim” form that the government doesn’t provide — only a written website address on a hardcopy postcard that presumes owners have access to computers and printers and notaries. Owners have to properly claim their money long before the home is sold and there is any money to claim. For most Michiganders, this so-called fix is illusory.
The state and federal constitutions command the government to remit the home’s value above and beyond the amount of debt. Automatic refunds would be easy; many states automatically remit excess proceeds. But Michigan makes former homeowners play a byzantine game with confusing and burdensome rules.
Owners’ failure rate is shockingly high, giving counties a sizeable windfall. The most recent data, reported by the counties themselves pursuant to state law, compiles information from 2022 foreclosure auctions. These reports show that 30 Michigan counties auctioned 445 foreclosed properties and returned not one penny to the former owners. These counties confiscated almost $5.9 million.
Most counties are not overrun with claimants, so it’s not a workload problem. For example, Midland County auctioned nine parcels, remitted nothing to the owners, and confiscated $255,655. Kent County auctioned a dozen parcels, remitted nothing, and kept $471,025. Barry County also auctioned twelve parcels, remitted nothing, and kept $993,750. Unfortunately, the list goes on.
Even when some owners do manage to navigate the claim statute, counties generally retain more proceeds than they pay. For example, Calhoun County remitted $138,100 to former owners and kept $500,266. Macomb County paid out $39,856 and confiscated $1,067,130. All told, of the 43 counties that auctioned 4,343 properties in 2022 and paid surplus proceeds to some owners and other lienholders, the counties reported confiscating a combined windfall of over $36 million.
Pacific Legal Foundation attorneys who represented Geraldine Tyler before the U.S. Supreme Court are seeking to reverse this injustice and have multiple requests on behalf of Michigan property owners pending at the High Court. Michigan’s statute — and the devastating results to property owners — can’t be squared with the categorical, constitutional mandate that government pay for what it takes.
The government bears the burden of remitting just compensation to a known owner and pledges its full faith and credit to do so. As the Supreme Court announced way back in 1883, this pledge, “means, of course, that payment shall be made….” And as the Eleventh Circuit Court of Appeals recently explained, the government’s “categorical duty” to remit just compensation cannot be conditioned on an owner’s successful completion of bureaucratic hurdles.
Landowners are constitutionally entitled to their money, full stop. Judge Kethledge admonished Michigan counties’ “shocking” practice of “employ[ing] every available legal artifice to keep as much of [the citizens’] money as they possibly can.” He concluded, “Local governments should serve their people, not prey upon them.”