Counties sought taxpayer bailout after keeping excess money from foreclosed homes

The Michigan Association of County Treasurers tried to get state taxpayers to pay for the legal expenses of counties that foreclosed on family homes and kept the excess proceeds from the sales.

The association, which lobbies on behalf of the state’s county governments, requested $171 million of taxpayer money in the 2026-27 budget to be awarded to the association to cover legal expenses.

A Legislative District Spending Item request was made by Sens. Jonathan Lindsey, R-Coldwater, and Stephanie Chang, D-Detroit to “financially protect counties by reimbursing county treasurers’ liabilities imposed by court decision regarding property tax foreclosures.”

Submission 537 Final by mcclallen

The request did not make it into the July 3 budget passed by the Legislature.

"Michigan law, for many years, mandated an unjust property tax foreclosure process that resulted in the government taking equity from property owners,” said Lindsey in an email to Michigan Capitol Confidential.

“It was the state Legislature who originally dictated this unjust property seizure process to county governments, and it is up to the Legislature to now make sure these property owners are made whole,” Lindsey said.

Before 2020, a foreclosing government unit could foreclose on a property over unpaid taxes and auction it off.

Instead of returning the excess profits from the sale of the home to the owner(s), counties would keep the money.

Take, for example, the case of an owner who had $5,000 in unpaid taxes on a home, and the county sold it for $200,000. The county would keep all the proceeds, not returning $195,000 to the owner.

The Legislature in 2020 passed laws that allowed owners of the foreclosed properties to receive the excess money earned from the sale.

The Michigan Supreme Court also ruled in 2024, in Schafer v. Kent County, that the law enacted in 2020 applied for six years retroactively. Families who had their homes foreclosed could reclaim the funds owed to them.

But the counties, instead of bearing the cost out of their own funds, wanted state taxpayers to foot the bill.

The request from the senators said that homeowners who have been foreclosed on and who lost home equity should be made whole. County treasurers needed money to implement Michigan law.

“Properties that were sold in the foreclosure auction for more than the taxes owed were used to offset the majority of properties that were sold at a loss,” said Sherry A. Comben, Antrim County treasurer and president of the county treasurer’s association, in an email to CapCon. She added that this protected local units of government from chargebacks for the uncollected taxes.

Without intervention from the Legislature or the state, Comben said, foreclosing governments units will have limited options under state law. She said that the foreclosing governments units will be forced to issue massive chargebacks to local units of government, potentially placing these local units under financial strain.

“The other option will be for counties to issue a judgement levy on taxpayers, placing an additional unfair burden on those who already paid to make up for those that were delinquent,” she noted.

Representatives from Cheboygan, Isabella, and Genesee counties also did not respond to a request for comment.

Isabella County was taken to the United States Supreme Court after foreclosing on a property over a disputed $2,242 tax bill.

After a tax tribunal ruled in favor of the homeowners over a homestead exemption the county did not apply, the county ignored the ruling and continued charging the family the non-homestead exemption rate.

When the family didn’t pay, the county seized the home, auctioning it for a fraction of its previously estimated value.

Instead of returning the profits proceeds that exceeded the tax due, the county kept the money. The U.S. Supreme Court ruled unanimously on June 23 that Isabella County did not violate the U.S. Constitution.

The court vacated a ruling from the Sixth Circuit Court of Appeals and sent the case Pung v. Isabella County back to the lower court, CapCon reported on July 1.