Editorial: End law that enables counties to steal property
Uri Rafaeli was behind on his property taxes by $8.41 in 2013. And that's all it took for Oakland County to foreclose on a rental property he owned to collect the small sum and a $277 penalty. Six months later, the county sold the property at auction for $24,500, turning a huge profit.
As hard as it is to believe, the county’s action was legal. Michigan’s General Property Tax Act requires county governments to seize property for unpaid taxes and keep the proceeds from the sale. The size of the debt does not matter.
This is a practice that must be overturned. It's an affront to basic liberties. Michigan has made strides in recent years to reform its civil asset forfeiture laws, to make it harder for police to seize property from citizens. There's still more to do on that front, and this law should be added to the to-do list of protecting citizens' property.
Rafaeli bought the property for $60,000 in 2011 and underpaid his taxes by $496 that year. He finally learned he had made a mistake two years later and tried to pay it off, but didn’t account for the interest that had accrued in the two years. Because of that calculation error, he lost his property.
In most states, the surplus of the sale of seized property is returned to the former owners. The state gets the revenue it deserves and the owner doesn’t forfeit all equity in the property to the government.
Many people’s home equity represents their life savings, and Michigan’s law allows the wholesale confiscation of it for property tax violations.
And it’s a boon for Michigan counties. Oakland County received $22.5 million in net proceeds from foreclosure auctions from 2006-15. It used some of that money for property maintenance and demolition as well as for funding tax foreclosures and property tax collection. The rest went into the general fund.
Wayne County receives similar benefit from the law. The county even includes this revenue as a line-item in its budget, projecting that this policy will earn over $10 million for the government in 2020.
Christina Martin, an attorney with the Pacific Legal Foundation representing Rafaeli, says the policy is so lucrative for county governments that it encourages bad behavior.
“Counties have perverse incentive to do the bare minimum to let people know the peril they face,” she says. “They are not honoring the just compensation clause in the Constitution.”
The Michigan Supreme Court recently decided to hear Rafaeli’s case and will likely decide whether the county keeping more than it was owed constitutes a violation of the Fifth Amendment.
A county government collecting tens of thousands of dollars for public use from a private citizen over a tax mishap seems a clear constitutional violation.
Both Vermont and New Hampshire’s Supreme Courts have ruled to protect property rights by ordering repayment of foreclosure sale surplus recently. The Michigan Supreme Court should follow.
Property tax laws shouldn’t allow government to steal without recourse from citizens. The court should affirm that.