Michigan Supreme Court takes case of foreclosure windfalls
DETROIT (AP) — A lawyer on Thursday warned the Michigan Supreme Court that local governments could face a financial calamity if forced to repay surplus cash from the sale of tax-foreclosed properties.
There is no dispute that state law allows county treasurers to keep money left over after overdue property taxes finally are paid from a sale. The issue for the court is whether the practice is illegal under the takings clause in the U.S. and Michigan constitutions.
“This is unjust and it is unconstitutional. … The government can take the property and sell it, but it can only keep what it’s rightfully entitled to,” said Christina Martin, an attorney for former property owners in Oakland County.
She called it “stealing.”
Because of an oversight, Uri Rafaeli owed $8.41 in taxes on a rental property in Southfield. The bill grew to $285 with penalties and interest. Oakland County sold the house for $24,500 but kept the balance, although the sale greatly exceeded the amount of overdue taxes.
Andre Ohanessian owed about $6,000. Oakland County sold his 2.7 acres for $82,000 and kept the windfall. There are similar stories in other Michigan counties.
John Bursch, arguing on behalf of Oakland County, told the Supreme Court that property owners have more than two years to avoid foreclosure because of unpaid taxes.
But after foreclosure, he added, property rights are extinguished along with any other claims.
“This is not unjust enrichment” by local governments, Bursch said. “When you’re on notice and you fail to do something, you lose your rights.”
He urged the justices to rely on the Legislature to change the law if the public thinks it’s unfair. Bursch said more than $2 billion is at stake if the court declares the law unconstitutional.
“A ruling for the plaintiffs will ruin local governments,” Bursch said. “There are currently class actions pending in all 83 county circuit courts and in our federal courts. … That will come right out of schools, roads police, firefighters and other basic services.”
In a court filing, a coalition of counties, townships and other local governments acknowledged that the facts of the Rafaeli case “could stir the indignation of any decent citizen.”
But the group said it wasn’t a case of government “taking the first opportunity to snatch property away from unsuspecting taxpayers.”