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Does the Michigan Property Tax Foreclosure Process Violate the Constitution?

John W. Fraser

In November, the Michigan Supreme Court heard oral argument in Rafaeli, LLC v Oakland Count—a case that may have major implications into how local governments handle property tax matters. In Michigan, if a person fails to pay their property taxes and they remain delinquent for a period of 3 years, the property is forfeited to the local county government and then sold at auction to pay the back taxes. The concept of property being foreclosed on and sold at auction to satisfy a debt is a pretty standard practice. If you default on your mortgage, the mortgage company is going to take steps to foreclose and sell your house at auction so that its loan can be repaid. If the house sells at auction for more than the debt owed, then the mortgage company must deliver the excess proceeds to you. In other words, the purpose of the foreclosure process is only to satisfy the debt owed to mortgage company.

For example, if you still owed $50,000 on your mortgage at the time of the foreclosure, but your home sells at auction for $100,000, the mortgage company is only entitled to keep $50,000 to pay back the debt that is owed. The remaining $50,000 represents the surplus equity that you owned in the home, and you would be entitled to receive that. In other words, the purpose of the foreclosure process is to repay the lender’s debt—not to cause the lender to receive a windfall.

Michigan’s property tax foreclosure process is similar in many ways to the typical foreclosure process, but with one big—and potentially unconstitutional—difference. When your property taxes become delinquent, the government doesn’t just foreclose on your property to pay the taxes—it actually forfeits your property to the local government.

In other words, you completely lose your ownership interest in the property and forfeit it to the government. Because the government has declared a forfeiture, you have no right to claim the surplus equity that you had at the home when the property is sold at auction.

In Rafaeli, LLC v Oakland County, Mr. Rafaeli inadvertently underpaid his property taxes by $8.41. Because he was delinquent on his property taxes, Oakland County forfeited and foreclosed on his property. The property sold at auction for $24,500. Following Michigan law, Oakland County kept the full $24,500—even though the original debt was only $8.41. In other words, Oakland County was able to generate a substantial windfall of over $20,000 to satisfy a modest property tax debt.

The practice of Michigan county governments to forfeit and foreclose on properties for unpaid property taxes is common. It happens in every county across the State. County governments generate massive windfalls through this practice because they get to keep the full proceeds from the sale of the properties at auction—not just what is owed on back property taxes.

Michigan’s property tax forfeiture and foreclosure practice has been criticized and lambasted. Judge Kethledge of the United States Court of Appeals for the Sixth Circuit characterized the practice as “theft” because in any other arena “keeping more than what is legally yours is ‘theft.’”

The Michigan Supreme Court is poised to issue an opinion as to whether the property tax forfeiture and foreclosure procedure violates the Michigan or United States Constitution. A decision from the Court is expected sometime in 2020.

If you’ve lost your home or property due to delinquent property taxes, you may be able to make a claim for your lost equity in your property. The attorneys at Grewal Law PLLC have a proven track record of fighting for what’s right.

Contact our office today for a free, confidential consultation to discuss your options.

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