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.

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

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42 Comments
This comment has been deemed insightful by the community.
That One Guy (profile) says:

'It's not even fun anymore...'

But, from now on, the government will have to share its takings with the people it’s taking property from.

A result that I guarantee will result in a massive drop in such actions, because much like robbery-at-badgepoint if you can’t profit obscenely from robbing the public then what’s the point?

The fact that it took a state supreme court to point out that no, you cannot turn a ten dollar fine into what is effectively a tens of thousands of dollars fine shows just how corrupt and/or insane the law and courts are, because that really should not have been something that needed to be said.

Anonymous Coward says:

Re: 'It's not even fun anymore...'

I hope the people of Michigan overthrow that government and expeditiously as possible. Any of those people in that government not raising their fist in anger to support the people should bow their faces to the dirt and beg forgiveness and mercy from those they have corruptly misgoverned.

Anonymous Coward says:

Re: 'It's not even fun anymore...'

It shows that the government does not hold the law sacred in and of itself, but only sacred as far as making the most money in can possibly pilfer from the citizens of this country. They should all get down on their knees and thank us all for breaking their precious laws or they would have nothing.

That Anonymous Coward (profile) says:

Re: 'It's not even fun anymore...'

It was not a clearly established right that stealing tens of thousands to settle a minor debt was wrong.

One does wonder how much they might end up on the hook for.
Of course one also wonders about ties between the buyers & officials (because if you will steal a house over $10 you will have a hard time convincing anyone that you wouldn’t then give your bestie a gift).

Anonymous Coward says:

Re: Re:

Since they’re auctioning off the property for less than it’s probably worth, even with a profit, the citizen should be able to claim a loss on their taxes for the difference between the sale price and the market value – which the government should know since it determines property taxes on that value.

David says:

Re: Re: Re:

Uh no? Selling property at a loss is still income. You will, of course, be able to write off the rest of the amount you paid for the property in one go. But the market value does not play into it at all.

The problem now is that previously the government had an interest in auctioning the property off for a reasonable price, so they could be expected to announce and advertise to a reasonable degree. If they have to hand over any surplus, that incentive is gone, and if they auction off a $100000 property for $2000, they could not care less now. Other than basic compassion with your constituents, that is.

Sort of sobering that the key expectation of the people you pay for governing you is that they behave like sociopaths.

Anonymous Coward says:

Re: Re: Re: Re:

Selling property at a loss is still income

For the purposes of taxation? I doubt it. It’s a capital loss, although capital gains and losses on your primary residence are generally exempt from taxation.

If, for a different example, you had to pay income tax on the full value every stock you sold, rather than a capital gains tax on the difference between the buying and selling price, I don’t think the stock market would function.

This comment has been flagged by the community. Click here to show it.

Anonymous Coward says:

newsflash to serfs

You never really own your home — you merely "rent" it from the local government politicians/landlords via eternal "property taxes".

PropertyTaxes are a fairly modern mechanism to steal even more of peoples’ money.
The concept of property taxes is fundamentally unjust.

But the American serfs never catch on to the basic swindle.

Anonymous Coward says:

Re: Re: Re: newsflash to serfs

70% corporate tax rate? way less services which cost far less to provide, such as roads and emergency services? lower populations? also, we had been busy taking and exploiting other people’s lands, with attendant economic booms. add in the the booms from rapid industrialization and agricultural expansion, and associated technological innovation.

but mostly, property tax is a local-ish thing, and there just weren’t any services which the people demanded that needed a tax base like property taxes.

not saying that such taxation cannot be excessive in practice, even when necessary.

This comment has been deemed insightful by the community.
Daydream says:

I just looked it up; according to the Pacific Legal Foundation, Rafaeli accidentally underpaid his taxes in 2011, and after discovering the error in 2013, paid for the deficit. The $8.41 was interest left over on that deficit that he didn’t notice.

That’s it. It’s not even a case of ‘he was being stubborn about the last few dollars and the law technically lets us do this’, it’s plainly obvious Rafaeli was making a good faith effort to pay all of his taxes.
This is nothing more than a shameless act of betrayal, by a state government that thinks it’s above consequences.

I wonder, did the Supreme Court rule against Michigan because they recognise this kind of theft is morally wrong three times over, or because they suspected there’d be riots if they didn’t?

Upstream (profile) says:

Re: Re:

I wonder, did the Supreme Court rule against Michigan because they recognise this kind of theft is morally wrong three times over, or because they suspected there’d be riots if they didn’t?

Apparently that is what it takes these days to make the government wake up from it’s fat-cat nap and even notice anything is going on. Of course, it is still more likely to try to scratch your eyes out rather than do what it should have been doing in the first place.

Cdaragorn (profile) says:

Re: Re:

It was sold at a government auction, so this has nothing to do with the actual worth of the property. Go to one of these auctions they hold for selling off confiscated property. It’ll blow your mind how cheaply they sell things. They literally don’t care how much they get because it’s all free $$ at that point.

Anonymous Coward says:

Given Michigan’s laws, that is why, whenever I drive to Canada’s Wonderland in Toronto, always dial up the security on my phone to insane cop proof levels, so that if my electrronics are ever seized, my phone will be encrypted and password protected with "booby trap" mode where brute force cracking will result in the phone wiping and resetting after 15 failed password attempts.

Becuase there is no way to get to Toronto from the west coast without going through Michigan, it is necessary to dial my phone up to insane cop proof levels.

This way if my electronics are seized, anything in my phone that might get me arrested later is not accessible

With malware and virusus sneaking onto your phone and doing who knows what, dialing my phone’s security up to insane cop proof levels is a must whenever I travel anywhere in the Consititution Free Zone.

That also includes trips to Disneyland and Sea World, in Southern California as well, since both places are also in the Consitution Free Zone.

That also includes driving to to the Phoenix area to visit my friend, as I have to pass through the Consitutution Free Zone in the LA area to get there.

Under the 5th amendment I cannot be compelled to give them my password, so they could not come back later on and arrest me if they either could not decrypt my phone, or if the "booby trap" that wipes and resets the phone is sprung after too many failed password attempts if they try to brute force the password.

Anonymous Coward says:

Re: Re: Re:

You also domt inow what is on your phone otlr computer whejn you.bought it

Whenever i buy a new computer i always eun a disk wipimg program snd then reinstall Wimdows

When i had to buy a new laptop after i was burgkarizes i immeddialy ran klldisk at maximum destruction level bevause i was goimg on a road trip right after

This was so that if the tecjs who put it togethrr did anything illegal.i cannot get in.trouble. People have been burned for what they did not know was there.

Using killdisk and refirmatting and reinstalling windows guarantees that what was on there cannot be recovered even by the best foremsic software

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