In Rafaeli v Oakland County, the Michigan Supreme Court held that the statutory scheme of foreclosing property for unpaid taxes, where the county takes title and then sells the property to a third party while retaining the sale proceeds in excess of the amount of the taxes due, is an unconstitutional taking of the former owner’s property without just compensation as required by Article 10 Section 2 of the Michigan Constitution.
Raefeli purchased a rental property in Southfield, MI for $60,000, but failed to pay real property taxes in full. For a balance of $8.41 plus $2.26 in interest, penalties, and fees, the property was foreclosed and acquired by Oakland County, which subsequently sold it for $24,500 to a third party, but the excess proceeds were not paid over to Rafaeli. Rafaeli sued.
Relying on civil asset forfeiture cases, both the trial court and the Michigan Court of Appeals held that the statutory scheme did not violate due process and upheld the foreclosure.
While holding that Rafaeli received adequate due process in the foreclosure proceeding, the court held that retaining the surplus proceeds was an unconstitutional taking of his property without just compensation.
As a result of this decision, counties are facing an onslaught of cases claiming unconstitutional takings, as well as figuring out how to make up the lost revenue stream from surplus proceeds.