As Wayne County defies the MSC ruling, citizens play the waiting game for the return of millions in tax foreclosure surplus profits
For years in Michigan, it was a common practice for county governments to sell tax-foreclosed real property at annual auctions and keep the “surplus proceeds” — the remaining monies generated by selling foreclosed properties over and above the taxes and costs owed to the government. In the wake of the Great Recession’s plunging housing valuations (and corresponding decreases in property taxes), county governments amped up tax foreclosures, which led to higher surplus proceeds, which they used to help fund their budgets. Counties retained these profits to the exclusion of the property owner, adding insult to injury to people who were already in dire financial shape and could only watch helplessly as hundreds of millions of dollars in surplus proceeds were pocketed statewide.
The case of Rafaeli v. Oakland County changed all that more than four years ago. In July 2020, the Michigan Supreme issued the Rafaeli opinion, which confirmed that when the government takes more than what is owed for a debt, that is a taking under Michigan’s Constitution: “any surplus that remains is the property of the [owner], and [the counties] were required to return that property.”
After Rafaeli, Oakland County swiftly righted its constitutional wrongs by resolving a then-pending federal class action to return the ill-gotten surplus funds to affected property owners. Foreclosed-upon victims in Oakland County were able to recover 100% of their surplus proceeds. Furthermore, the settlement provided for the full return of surplus funds, with interest, over and above payment of the court-approved litigation costs and legal fees.
Unfortunately, Wayne County has taken a starkly different approach. Instead of returning the estimated $120+ million in unconstitutional surplus proceeds taken from its citizens, the county — through its leaders Warren Evans and Eric Sabree — has relentlessly pursued a litigation strategy of deny and delay, grasping at every possible technicality and legal appeal to avoid returning these funds to the very citizens they serve. And this is despite two unanimous opinions from the Michigan Supreme Court — Rafaeli and the most recent ruling in Schafer v. Kent County — and a ratifying unanimous decision from the U.S. Supreme Court in Tyler v. Hennepin, each confirming Wayne County’s practice of retaining its citizens’ surplus proceeds amounts to unconstitutional theft. As best said by Chief Justice Roberts in Tyler, “The taxpayer must render unto Caesar what is Caesar’s, but no more.”
It has been more than four years since the Rafaeli case was decided. Yet, Wayne County continues to withhold the funds that belong to its citizens. In a country founded on the idea that government is intended to serve its citizens, Wayne County’s relentless attempts to deprive its citizens of what they are entitled to under the law are alarming and illegal. At least one federal appellate judge has described what counties like Wayne have done as “theft.”
Confronted with the mess it created, Wayne County today says it has a ‘plan.’ It proposes that everyone be forced into a long, cumbersome, government-run claims process that demands each citizen file a new claim outside of the current lawsuit (Tonya Bowles v. County of Wayne) and without any legal help. Under this plan, Wayne Couty will review each claim for timeliness, assess eligibility, and perhaps, ultimately, approve the claim for some payment. The Wayne County plan allows the county to recoup its costs (and likely legal fees) while capping any repayment of surplus funds at 95% and without paying interest — far less than what the U.S. and Michigan Constitutions require. Appallingly, the plan leaves the same governmental entity that has desperately tried to hide from the reality of its constitutional wrongs and prevent its citizens from recovering a dime — for more than four years — in charge of doing what is right. This plan is intended for one purpose: to subvert Wayne County citizens’ recovery of what the court has repeatedly said they are due. That plan is plagued with government red tape. It is far inferior to simply entering into a federal court-monitored class action settlement with its citizens to return 100% of the surplus funds and interest, just like Oakland County did.
Aaron D. Cox is a real-estate litigation attorney and founder of Taylor, Michigan-based Law Offices of Aaron D. Cox, PLLC, which focuses on representing property owners in legal disputes from eviction actions to collections, civil rights claims, and quiet title cases. He was one of the lead counsels in the Rafaeli v. Oakland County matter and is one of three lead counsels in the tax foreclosure class action lawsuit Tonya Bowles v. County of Wayne.