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“[G]overnment shall not collect more in taxes than are owed, nor shall it take more property than is necessary to serve the public[.]”

With these words, the Michigan Supreme Court on Friday confirmed what Uri Rafaeli and his attorneys knew all along: The government violates constitutional property rights when it takes more than it is owed from individuals to collect unpaid taxes.

Before Uri Rafaeli’s victory in the Michigan Supreme Court on Friday, Michigan’s counties routinely violated property rights with impunity, engaging in what the Pacific Legal Foundation has dubbed “home equity theft” — taking the entire value of a home to pay small tax debts.

That’s what Oakland County did to Uri Rafaeli, an 85-year old retired engineer who lost his rental home over an incredibly small property tax debt of $8.41. When County Treasurer Andrew Meisner auctioned the property for $24,500, the county pocketed every penny — $24,215 more than it was owed in taxes, penalties, interest, and costs. In all justice and fairness, that surplus money belongs to Rafaeli.

Fortunately, the Michigan Supreme Court unanimously corrected the injustice and ended the perverse incentive for counties to take homes to collect nominal tax debts.

The court’s ruling affirms that Michigan’s Constitution does not allow the government to keep surplus proceeds from a tax sale; keeping it is unconstitutional. The decision explains the fundamental nature of the property right violated by counties across the state. The court noted that even the Magna Carta, the 13th century document that proclaimed rights of Englishman long before American’s founding, “recognized that tax collectors could only seize property to satisfy the value of the debt payable to the Crown, leaving the property owner with the excess.” This principle was also “firmly established in the early years of Michigan’s statehood.”

As the Michigan Supreme Court recognized, “[l]ike the founders of our nation, Michigan has historically held property rights in the highest regard.” Quoting Thomas Cooley, the 19th century Michigan Supreme Court justice who influenced legal thinking around the country, the court declared that “the right to private property is a sacred right; . . . it was the old fundamental law, springing from the original frame and constitution of the realm.” 

The court shredded the government’s defense of home equity theft. For example, Oakland County argued that taking Rafaeli’s entire home and keeping the profits from the sale is a legitimate exercise of the government’s taxing power — a favored line among defenders of home equity theft in other states, too. But the court saw this argument for what it is: “an exceedingly poor attempt at disguising a physical taking of property requiring just compensation as an arbitrary and disproportionate tax.”

Although other state courts aren’t bound by the Michigan decision, this decision does not bode well for tax collectors in other states continuing home equity theft. The Pacific Legal Foundation has launched a nationwide campaign to end home equity theft, urging other states to follow Michigan’s lead. The longer these other states wait, the more likely they will wind up like Oakland County, at the losing end of a court decision that forces them to pay back people from whom they have stolen home and land equity.

For many home equity theft victims in Michigan, there is finally some justice. Rafaeli’s case will return to the trial court, where he will finally be able to seek just compensation. And Michigan property owners who find themselves in the same situation as Rafaeli, such as the PLF's client Erica Perez — whose property was auctioned for more than $100,000 to collect a mere $114 debt — are positioned to demand the return of their stolen equity, provided they do so within the right timeframe. And with the elimination of home equity theft, a county’s incentive to foreclose over small debts is gone, since they can no longer reap a huge windfall at the owner’s expense. Counties will finally have an incentive to keep owners in their homes, hopefully resulting in fewer foreclosures in the first place.

Uri Rafaeli and his pro bono attorneys at the Pacific Legal Foundation celebrate this victory for property rights, but the work is not done. At least a dozen other states still take more than they’re owed. Whether by legislation or litigation, the PLF aims to restore justice to every last one of them.

Christina Martin and David Deerson are attorneys at the Pacific Legal Foundation, which litigates nationwide to achieve court victories enforcing the Constitution’s guarantee of individual liberty. Martin represented Uri Rafaeli before the Michigan Supreme Court.

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