Substantial Change to Property Tax Foreclosures

Substantial Change to Pro…

A few years ago, we helped a client who had lost a residential income property to tax foreclosure for failing to pay what began as less than $100 in property taxes (attributable to an inadvertent oversight). The house was ultimately sold by the county treasurer at auction for $40,000. After reimbursing itself for the unpaid taxes, interest, penalties, and fees, the county kept the substantial surplus as allowed by Michigan law. This longstanding practice became the subject of several lawsuits filed on behalf of property owners throughout the state, with the Michigan Supreme Court recently ruling in two such cases that it was unconstitutional.

Under Michigan law, tax delinquent properties are forfeited by local governmental units to their county treasurer, which then forecloses and ultimately sells the properties at auction to recover the delinquent property taxes and fees associated with the foreclosure process. Once reimbursed, the county can keep any surplus sale proceeds, sometimes amounting to tens of thousands of dollars.

While recognizing and upholding the right of the counties to seize property for delinquent property taxes, the Michigan Supreme Court went on to rule that counties cannot sell tax-foreclosed properties at a profit and keep the surplus; to do so constitutes the unconstitutional taking of private property without just compensation under both the federal and Michigan constitutions. While the county can keep the taxes, interest, penalties, and fees associated with the foreclosure and sale of the property, any surplus must be returned to the former property owner.

While applauded by property owners, local governmental officials fear the adverse impact on their revenue stream, which some have estimated will amount to $2 billion statewide. If you have any questions about how this change will impact you, contact our office at or (248) 477-6300.

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