A 1999 Michigan state law provided for properties with unpaid taxes to be seized and rapidly resold by county treasurers. While this practice is not uncommon across the nation, a peculiarity of the Michigan statute has proven to have had unforeseen consequences, namely the part that let counties pocket any proceeds from those sales in excess of what was owed.
In what amounted to legal real estate robbery, county treasurers took advantage of the law for two decades to foreclose on homes and pump hundreds of millions into their “delinquent tax revolving fund” (“DTRF”), where profits from forfeitures were kept.
Any positive balance at the close of the fiscal year could simply be transferred into the county’s budget. Thus, the more aggressive a treasurer was, the richer the county became.
According to reason.com, a Bridge magazine analysis found Wayne County reaped over $380 million from its DTRF since 2012.
Oakland County, while not quite as lucrative, still managed to net nearly $197 million since the scheme began.
There had been numerous complaints over the years from former homeowners whose equity was stolen in accordance with the tax law, yet one case in Oakland County was too egregious for authorities to ignore. Uri Rafaeli, a retiree in Southfield, had his home foreclosed on in 2014 after mistakenly sending in a check for his taxes that was short $8.41. Rather than notify Rafaeli of the error and, at worst, charge him a late fee on the delinquent amount, Oakland County Treasurer Andrew Meisner moved almost immediately to seize the property and resell it. The county profited over $24,000 from the tactic.
Another stunning example of the abuses enabled by the 1999 law occurred when Donald Freed had 35 acres of land taken by Gratiot County. Though Freed owed only $750 in taxes on the land, the county pocketed $100,000 from its sale.
The Rafaeli case eventually landed before the Michigan Supreme Court, which ruled in July 2020 that the portion of the law allowing counties to profit from tax forfeitures is unconstitutional. Justice Brian Zahra wrote that Oakland County had had a responsibility “to return the surplus proceeds to plaintiffs, and defendants’ failure to do so constituted a government-taking under the Michigan Constitution entitling plaintiffs to just compensation.”
The case was returned to the lower court to determine the amount of Rafaeli’s compensation. Foreseeing this possible outcome, Oakland County’s lawyers had argued before the Supreme Court that recompensing everyone who had been taken advantage of by the 1999 law could cost over $2 billion across the state, but the Court found that a hefty price tag in no way excused counties’ predatory actions.
In response, the state Senate approved reform bills designed to stop counties from profiting from foreclosed property sales. Those affected could request the excess proceeds through the judge who ordered the home foreclosure.
