Leaning foreclosure sign in front of a modern single family home on a cloudy cold day
$8.41. That was how much 83-year-old Uri Rafaeli, a retired engineer, in Michigan underpaid his property taxes by in 2014. That was all it took for him to lose his house.
Rafaeli bought a 1,500-square-foot Southfield home in 2011. He paid $60,000 for the property, and the deed was recorded by the Oakland County Register of Deeds on January 6, 2012. He put additional money into the home, too, as he intended to use the rental income from the property to fund his retirement.
Rafaeli believed that he was paying his property taxes on time and in full, but in 2012, he received notice that he had underpaid his 2011 tax bill by $496. He paid up in 2013 but made a mistake figuring the interest (interest also accrued while his check was in the mail): he was short by $8.41.
In response, Oakland County seized his property and put it up for sale. The home netted just $24,500 at auction; according to Zillow, the property is now estimated to be worth nearly $130,000.
The County kept the overage from the auction: $24,215 in profits, or 8,496% of the actual tax, penalties, and interest due (the debt had grown to $285 with penalties, interest, and fees).
It was all legal.
Under Act 123 of 1999, Michigan allows its county treasurers a great deal of authority to handle unpaid taxes, including rushing the tax foreclosure process. Under the Act, the property is considered delinquent if taxes aren’t paid in the previous year. If the outstanding taxes, fees, and penalties remain unpaid after two years, the County can foreclose on the property; that’s much more quickly than before when the average timeframe to move a foreclosure was five to seven years. Shortly after foreclosure, the former owner loses the right to buy back the property, and the County becomes the owner. At sale, the funds belong to the County. There’s no requirement to refund any of the proceeds to the owner even if the overage far exceeds the amount owed.
Rafaeli – and his lawyers – think that’s wrong. They took the matter to the U.S. District Court for the Eastern District of Michigan. The court found that Rafaeli – and a similarly situated plaintiff – suffered “a manifest injustice that should find redress under the law” but dismissed the claim for lack of jurisdiction.
Rafaeli tried again. He didn’t argue that he didn’t owe tax, penalties, interest, and fees. But he did object to the County taking the excess. The County argued that Rafaeli had no rights to the equity because the General Property Tax Act does not expressly protect it. And that’s the reason that Rafaeli keeps losing: the courts have sympathy for his plight but have found that the law does not prevent the County from keeping it.
He’s not alone. Tens of thousands of properties in Detroit have been subject to the same kind of treatment. Many of those who owe taxes understand that they have a debt, but they don’t necessarily understand how to navigate the process, or what the failure to pay on time can mean. As with Rafaeli, even something as simple as miscalculating the interest due, can have serious consequences.
Today, Rafaeli is represented by the Pacific Legal Foundation (PLF). PLF was founded in 1973 by members of then-Governor Ronald Reagan’s staff as the first public interest law firm dedicated to the principles of individual rights and limited government. PLF is taking the case to the Michigan Supreme Court, arguing that keeping the funds is an unjust taking. If he wins, Rafaeli – and other landowners in similar situations – may be entitled to compensation.
According to PLF, the entire process, as it is happening now, is nothing more than government-sanctioned theft. “Predatory government foreclosure particularly threatens the elderly, sick, and people in economic distress,” PLF argued on its website. “It could happen to your grandparents. It could happen to you.”