Wayne County foreclosures spark federal class-action lawsuit

Wayne County officials are facing a federal class-action lawsuit amid claims the county sold foreclosed homes at unfairly low prices and pocketed all of the proceeds instead of distributing some of the earnings to the owners.

The lawsuit was filed Thursday in U.S. District Court on behalf of Tonya Bowles, who lost her Detroit home to foreclosure in 2017. 

Although the property on East State Fair had a fair market value of $36,600, Wayne County Treasurer Eric Sabree's office sold it at a tax auction for $14,000, according to the document, and retainined the proceeds above the tax delinquency and administrative fees for the county.

“Defendants have taken plaintiffs’ and the class members’ property interests in the form of equity — that is the value of their properties to the extent they exceed the properties’ tax delinquencies — and have appropriated this property for public use without the payment of just compensation in violation of the Fifth and Fourteenth Amendments to the United States Constitution,” the filing stated.

“The defendants seized plaintiff’s equity in the East State Fair property by foreclosing upon said property, selling it at auction for an amount much lower than its fair market value, but still far more than the tax delinquency, and failing to return any of the equity to her,” Bowles’ attorneys said.

The suit alleges that while Michigan law allows counties to foreclose on parcels to satisfy outstanding unpaid property taxes, Wayne County and its officials “abuse this process” by selling properties at reduced amounts, pocketing the proceeds and keeping the equity while the owners “lose the entire value” of their properties.

Bowles' lawyers argue Sabree “refuses to pay just compensation, failed to initiate any form of condemnation proceedings, or has failed to have or undertake a process to return the surplus equity.”

Representatives for Sabree did not immediately respond to requests seeking comment Thursday night.

The county commission is also named in the suit. Jim Toth, a spokesman, told The Detroit News in an email: "The Wayne County Commission does not comment on pending lawsuits." 

The lawsuit seeks an order awarding damages and “declaring the conduct of defendants as being unconstitutional under the federal and state constitutions, even if being undertaken consistent with the General Property Tax Act.”

It follows the Michigan Supreme Court unanimously ruling in July that counties cannot sell tax-foreclosed property at a profit without compensating the individual from whom the property was taken. Counties that retain profit over the amount of tax owed without compensating the previous property owner participate in an “unconstitutional taking,” according to the opinion.

This week, a coalition of community activists called on Sabree to pursue a continued ban of "inhumane" countywide property tax foreclosures in 2021 and beyond amid financial hardships spurred by COVID-19.

A Detroit News investigation published in January found Detroit overtaxed homeowners by least $600 million between 2010 and 2016 after officials failed to accurately assess properties to keep pace with falling property values during the Great Recession.

City officials told The News on Wednesday Detroit’s efforts have successfully cut owner-occupied foreclosures by 95% from more than 6,400 in 2015 to 357 in 2020.

Wayne County officials said in July that foreclosures had fallen 86% since 2015.