Property Rights

County Says Seizing Home Over $8.41 Tax Debt Was OK Because Counties Need Money

"You have a situation where a person owed $8 and lost their house. I mean, how is that equitable?" asked Michigan Supreme Court Justice Richard Bernstein.


Arguing before the Michigan Supreme Court, attorneys for the county that pocketed nearly $25,000 from forfeiting Uri Rafaeli's property over a $8.41 tax debt argued that it's not really about the property—it's about the money.

That telling moment came in the midst of a back-and-forth between Justice Richard Bernstein and John Bursch, the attorney representing Oakland County. In trying to defend the county's right to seize the full value of Rafaeli's property over a minuscule debt, Bursch had argued that it was impossible for local governments to compensate all homeowners who had been caught in similar circumstances. The price tag, he estimated, would be more than $2 billion statewide.

Rafaeli's situation is awful but hardly unique: Under the terms of a state law passed in 1999, county treasurers in Michigan are allowed to seize properties with unpaid taxes, settle the debt, and keep the remainder for their own budgets. The Pacific Legal Foundation, a nonprofit law firm, is challenging that law, arguing it violates provisions in both the Michigan and U.S. Constitutions.

"A ruling for the plaintiffs will ruin local governments," warned Bursch. "That will come right out of schools, roads, firefighters, and other basic services."

Bernstein wasn't buying it.

"The interpretation you gave was very dramatic: that this is going to end schools, and the counties are going to crumble, and society is just going to implode," said Bernstein, interrupting Bursch. "You have a situation where a person owed $8 and lost their house. I mean, how is that equitable?"

"It may sound unfair on its face," Bursch replied. "But it's also unfair to force those who pay their taxes to subsidize those who don't."

Bernstein was still skeptical. "It was $8," he said. "Couldn't it be a mistake?"

"The counties don't want the property," argued Bursch. "They want the money." Bingo.

There are two different ways to interpret Bursch's argument. What he was probably trying to say is that counties are using the law—and forfeiture proceedings authorized by it—as a punitive measure to compel the payment of taxes.

Later during the same oral arguments, he described the arrangement as pure government paternalism.

"It's the same as when I tell my kids: 'If you don't pick up your stuff, it's mine,'" Bursch argued. "They can't complain when I then take their stuff and claim that I took their equity in that property."

That's a silly analogy for a whole bunch of reasons—homeowners aren't the government's children, most importantly.

Chief Justice Bridget Mary McCormack quickly crushed that line of argumentation by pointing out counties can't dodge takings claims by arguing that at least they respected due process. That would be like cops trying to get away with violating the Fourth Amendment's prohibition against unreasonable searches simply by claiming they were respecting a suspect's First Amendment right to complain about the search.

Beyond the gross paternalism on display, the county's argument still breaks down. Only a few states have property tax forfeiture laws that are as strict or punitive as Michigan, but people in other states still pay their property taxes. And local governments in Michigan have plenty of other means by which to compel the payment of taxes—interest, fees, and penalties are already charged in situations where forfeiture occurs in Michigan. If those measures are not sufficient, they can be increased by statute. But imposing penalties is fundamentally different than taking the full value of a property over unpaid taxes.

Whether he meant to or not, the second way to understand Bursch's comments about the county wanting the money is that he's saying the quiet part loud. As Reason's reporting has shown, counties do seem to want the money. And not just the money they are owned from property taxes, but the excess revenue they have been able to raise by aggressively pursuing home equity forfeitures.

In Oakland County, for example, the special budgetary fund that contains revenue from tax foreclosed properties contained more than $196 million last year, according to the county's most recent comprehensive annual financial report.

The same document details plans to use the DTRF for a number of pet projects, including the construction of a new animal shelter and adoption center. The county also "anticipates the continuation of annual transfers from the DTRF to support General Fund / General Purpose operations in the amount of $3.0 million annually for FY 2019 through FY 2023″—totals that are in line with historical norms, according to the annual report.

That's hundreds of millions of dollars in private equity that have been transferred to the two counties' control—completely legally, under the terms of Act 123.

In neighboring Wayne County, more than $382 million in delinquent tax surpluses have been funneled into the general fund budget since 2012, according to an analysis by Bridge magazine, a Michigan-based nonprofit publication.

This probably isn't the sort of thing that will be the determining factor in the lawsuit against Oakland County—but it does make clear just how much money is at stake here.

"Failure to pay your property taxes doesn't give the government license to take everything from you," says Christina Martin, the attorney with PLF who represented Rafaeli and other landowners in front of the state Supreme Court. "If they could do that, then they could take your car if you pay a parking ticket late."

A ruling in the case is expected in the first half of next year.