By Zach Gorchow
Gongwer New Sertvice
It is an unconstitutional taking when a local government purchases a property in tax foreclosure whose value exceeds what the owner owed, the Supreme Court ruled recently.
In 2020, the court in the landmark Rafaeli case ruled unconstitutional the longtime practice of counties to keep the proceeds from the sales of properties on which it foreclosed, holding such proceeds must be returned to the prior owner of the property.
However, that case did not answer the question of what happens should a property in tax foreclosure not go up for public auction. Under the General Property Tax Act, the municipality in which the property is located has the first right of refusal to purchase the property from the foreclosing government (usually the county treasurer) for a minimum bid.
A series of Southfield property owners became delinquent on their property taxes in 2012 and 2014. The Oakland County treasurer foreclosed on the properties under the General Property Tax Act language in place at that time. Southfield purchased the properties, placing them into the Southfield Neighborhood Revitalization Initiative, so they never went up for auction.
The property owners sued, alleging violations of the state and U.S. Constitution takings clauses. They lost at the Oakland Circuit Court and Court of Appeals, which ruled in 2019.
But after the court's Rafaeli decision in 2020, the plaintiffs appealed to the Supreme Court, which vacated the lower court rulings and remanded the case to the Oakland Circuit Court for reconsideration given the Rafaeli decision.
The Oakland Circuit Court again ruled for Southfield. The Court of Appeals, however, reversed on several matters. It held that Rafaeli applied retroactively and that Rafaeli permitted takings claims under the Michigan Constitution and that the changes to the General Property Tax Act recognizing the Rafaeli decision applied retroactively.
Justice Richard Bernstein, writing for a unanimous Supreme Court in Jackson v. Southfield Neighborhood Revitalization Initiative (MSC Docket No. 166320), said the protection of privately owned property from undue governmental interference is a core constitutional right.
"Where a public foreclosure sale occurs, the government commits a taking only if it retains any surplus proceeds received from the sale of the property," Bernstein wrote. "But where, as here, there are no sales by public auction, the government commits a taking if the value of the property retained exceeds what the government was owed. The government cannot evade long-established methods of disposing of foreclosed properties through public sale and simply keep highly valuable property for itself, avoiding paying any compensation to homeowners. Such a practice would allow governments to circumvent Rafaeli and render its constitutional holding inert for property owners affected by similar takings."
Bernstein declined address a question from the Michigan Association of County Treasurers of whether the county or local government exercising its right of first refusal is liable for the taking.
Although the Supreme Court upheld the Court of Appeals on the questions of whether Rafaeli applied retroactively and Rafaeli permitted takings claims under the Michigan Constitution, it reversed on the matter of whether the changes to the General Property Tax Act in PA 255 of 2020 were retroactive. The Supreme Court held those changes apply only prospectively.
The case was remanded to the Oakland Circuit Court. Justice Noah Hood did not participate in the case, which was argued before he joined the bench.
Gongwer New Sertvice
It is an unconstitutional taking when a local government purchases a property in tax foreclosure whose value exceeds what the owner owed, the Supreme Court ruled recently.
In 2020, the court in the landmark Rafaeli case ruled unconstitutional the longtime practice of counties to keep the proceeds from the sales of properties on which it foreclosed, holding such proceeds must be returned to the prior owner of the property.
However, that case did not answer the question of what happens should a property in tax foreclosure not go up for public auction. Under the General Property Tax Act, the municipality in which the property is located has the first right of refusal to purchase the property from the foreclosing government (usually the county treasurer) for a minimum bid.
A series of Southfield property owners became delinquent on their property taxes in 2012 and 2014. The Oakland County treasurer foreclosed on the properties under the General Property Tax Act language in place at that time. Southfield purchased the properties, placing them into the Southfield Neighborhood Revitalization Initiative, so they never went up for auction.
The property owners sued, alleging violations of the state and U.S. Constitution takings clauses. They lost at the Oakland Circuit Court and Court of Appeals, which ruled in 2019.
But after the court's Rafaeli decision in 2020, the plaintiffs appealed to the Supreme Court, which vacated the lower court rulings and remanded the case to the Oakland Circuit Court for reconsideration given the Rafaeli decision.
The Oakland Circuit Court again ruled for Southfield. The Court of Appeals, however, reversed on several matters. It held that Rafaeli applied retroactively and that Rafaeli permitted takings claims under the Michigan Constitution and that the changes to the General Property Tax Act recognizing the Rafaeli decision applied retroactively.
Justice Richard Bernstein, writing for a unanimous Supreme Court in Jackson v. Southfield Neighborhood Revitalization Initiative (MSC Docket No. 166320), said the protection of privately owned property from undue governmental interference is a core constitutional right.
"Where a public foreclosure sale occurs, the government commits a taking only if it retains any surplus proceeds received from the sale of the property," Bernstein wrote. "But where, as here, there are no sales by public auction, the government commits a taking if the value of the property retained exceeds what the government was owed. The government cannot evade long-established methods of disposing of foreclosed properties through public sale and simply keep highly valuable property for itself, avoiding paying any compensation to homeowners. Such a practice would allow governments to circumvent Rafaeli and render its constitutional holding inert for property owners affected by similar takings."
Bernstein declined address a question from the Michigan Association of County Treasurers of whether the county or local government exercising its right of first refusal is liable for the taking.
Although the Supreme Court upheld the Court of Appeals on the questions of whether Rafaeli applied retroactively and Rafaeli permitted takings claims under the Michigan Constitution, it reversed on the matter of whether the changes to the General Property Tax Act in PA 255 of 2020 were retroactive. The Supreme Court held those changes apply only prospectively.
The case was remanded to the Oakland Circuit Court. Justice Noah Hood did not participate in the case, which was argued before he joined the bench.
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