Michigan Supreme Court: Selling A $24,000 House (And Keeping The Proceeds) Over An $8.41 Debt Is Unlawful

from the please-stop-defending-the-indefensible,-government-legal-reps dept

This seems like the sort of thing a court shouldn't need to sort out, but here we are. More specifically, here are two plaintiffs suing over Oakland County, Michigan's forfeiture policy. This isn't civil asset forfeiture -- where property is treated as guilty until proven innocent. This isn't even criminal asset forfeiture -- the seizure of property by the government following a conviction.

But this form of forfeiture can be just as abusive as regular civil asset forfeiture. There's no criminal act involved -- real or conjectured. It's the result of a civil violation: the nonpayment of property taxes. And Oakland County, the plaintiffs argue, is performing unconstitutional takings to unjustly enrich itself.

It's not that these sorts of things are uncommon. Tax liens are often put on property when tax payments are delinquent. It's that one of these seizures -- and subsequent auction -- was triggered by a delinquent amount that would have required the county to make change from a $10 bill. (via Volokh Conspiracy)

This is from the opening of the state Supreme Court's decision [PDF], which shows just how much the county government can profit from these forfeitures.

Plaintiff Rafaeli, LLC, owed $8.41 in unpaid property taxes from 2011, which grew to $285.81 after interest, penalties, and fees. Oakland County and its treasurer, Andrew Meisner (collectively, defendants), foreclosed on Rafaeli’s property for the delinquency, sold the property at public auction for $24,500, and retained all the sale proceeds in excess of the taxes, interest, penalties, and fees.

That's right. It only took $8.41 to initiate these proceedings. Even after accounting for the additional fees, the county turned less than $300 in delinquencies into a $24,200 profit.

Rafaeli, LLC isn't the only plaintiff. Another property owner, Andre Ohanessian, saw $6000 in taxes, fines, and fees turn into a $76,000 net gain for the county when it auctioned his property for $82,000 and kept everything above what it was owed.

The lower court said there was nothing wrong with the government keeping thousands of dollars property owners didn't owe it.

The circuit court granted summary disposition to defendants, finding that defendants did not “take” plaintiffs’ properties because plaintiffs forfeited all interests they held in their properties when they failed to pay the taxes due on the properties. The court determined that property properly forfeited under the GPTA [General Property Tax Act] and in accordance with due process is not a “taking” barred by either the United States or Michigan Constitution. Because the GPTA properly divested plaintiffs of all interests they had in their properties, the court concluded that plaintiffs did not have a property interest in the surplus proceeds generated from the tax-foreclosure sale of their properties.

The appeals court felt the same way about the issue, resulting in this final appeal to the state's top court. The Michigan Supreme Court says this isn't proper, going all the way back to English common law that had been adopted by the new nation more than two hundred years ago.

At the same time that it was common for any surplus proceeds to be returned to the former property owner, it was also generally understood that the government could only collect those taxes actually owed and nothing more.

[...]

This Court recognized a similar principle in 1867, stating that “[n]o law of the land authorizes the sale of property for any amount in excess of the tax it is legally called upon to bear.” Indeed, any sale of property for unpaid taxes that was in excess of the taxes owed was often rendered voidable at the option of the landowner. Rather than selling all of a person’s land and risk the sale being voided, officers charged with selling land for unpaid taxes often only sold that portion of the land that was needed to satisfy the tax debt. That is, early in Michigan’s statehood, it was commonly understood that the government could not collect more in taxes than what was owed, nor could it sell more land than necessary to collect unpaid taxes.

That all changed with the General Property Tax Act. The current version of the GPTA unilaterally declares all ownership rights "extinguished" the moment the government begins proceedings against the property, well before the foreclosure sale occurs.

This law -- as exercised in these forfeitures and auctions -- is unlawful, the Supreme Court says.

We conclude that our state’s common law recognizes a former property owner’s property right to collect the surplus proceeds that are realized from the tax-foreclosure sale of property. Having originated as far back as the Magna Carta, having ingratiated itself into English common law, and having been recognized both early in our state’s jurisprudence and as late as our decision in Dean in 1976, a property owner’s right to collect the surplus proceeds from the tax-foreclosure sale of his or her property has deep roots in Michigan common law. We also recognize this right to be “vested” such that the right is to remain free from unlawful governmental interference.

The government argued that without being able to take everything (even when less is owed), it does not have a stick of sufficient size to wield against delinquent taxpayers. Nonsense, says the state's top court. The state can still collect what is owed. What it can't do is take more than that.

We recognize that municipalities rely heavily on their citizens to timely pay real-property taxes so that local governments have a source of revenue for their operating costs. Nothing in this opinion impedes defendants’ right to hold citizens accountable for failing to pay property taxes by taking citizens’ properties in satisfaction of their tax debts. What defendants may not do under the guise of tax collection is seize property valued far in excess of the amount owed in unpaid taxes, penalties, interest, and fees and convert that surplus into a public benefit. The purpose of taxation is to assess and collect taxes owed, not appropriate property in excess of what is owed.

If the county wants its eight dollars, it can take its eight dollars. Everything above that still belongs to the original property owner. This should seem obvious, but it isn't. It took the state's top court 49 pages to arrive at this conclusion. What seems obvious to citizens is far too often deliberately unclear to government agencies. Legislation is rarely written in plain language. And it's crafted by people who have a vested interest in ensuring their employer's financial stability. The end result -- years down the road -- is the government turning a $285 foreclosure into a $24,000 surplus. The final insult is taxpayers paid for county officials to argue against the taxpayers' best interests. But, from now on, the government will have to share its takings with the people it's taking property from.

Filed Under: civil asset forfeiture, debt, michigan, oakland county, punishment, takings