Oakland County Takes House For $8.41 Property Tax Mistake
Owner likely will see them in state Supreme Court later this year
For Michigan resident Yair Andegeko, his father-in-law Uri Rafaeli’s lawsuit against Oakland County and County Treasurer Andrew Meisner isn’t just about money, it’s about principle.
“Let’s make the fight a good one,” said Andegeko, who lives in East Grand Rapids. “Each time I tell the story, I can’t sleep. It’s not even because of the money. It’s unbearable that someone can lose property over a mistake.”
Two courts have affirmed that county governments may keep the profits when they foreclose on a property for delinquent taxes and then sell it. But the Michigan Supreme Court agreed in November to accept Rafaeli’s legal challenge to the practice.
The dispute involves counties keeping foreclosure sale proceeds that exceed the amount needed to cover any unpaid taxes, interest and fees owed by the property owner. Rafaeli argues that after a county has recovered back taxes, costs and interest when it sells a property in a tax foreclosure sale, what’s left over should go to the property owner.
Oral arguments in the case will likely focus on whether Michigan’s property tax law violates provisions of the state Constitution and the Fifth Amendment of the U.S. Constitution. Both prevent governments from taking private property without compensating its owner.
On March 31, 2014, the Oakland County treasurer’s office foreclosed on a Southfield rental property Rafaeli owned, because he owed $285 in property taxes from 2011. He had paid his property taxes in full in 2012 and 2013, and he had made the first payment for 2014. According to court documents, Rafaeli tried to make up the unpaid property taxes from 2011 in January 2013, but he miscalculated the interest he owed the county by $8.41.
Before foreclosing on the rental property, the treasurer’s office said, it sent several letters to the Southfield address between June 2012 and January 2014. The office also said it sent notices to Rafaeli LLC in St. Clair Shores and to a property manager in Rochester.
Andegeko said that a former tenant admitted to having opened a notice from the county and not saying anything to him about it.
In an email, Rafaeli said that the treasurer’s office didn’t call him or send him an email or fax.
On August 19, 2014, the county sold the property at an auction for $24,500, keeping not only the money it was due but also the funds that exceeded the debt. Andegeko said that before then, neither he nor his father-in-law knew the property had been foreclosed on.
Rafaeli, now 84 years old, is a retired civil engineer who lives in Israel. According to Andegeko, his father-in-law purchased the Southfield property in August 2011 as an investment, for $60,000. By 2014, the house had been “completely renovated,” according to Rafaeli.
On Sept. 23, 2014, Andegeko said, he traveled 2 1/2 hours from his home in West Michigan to the Oakland County treasurer’s office in Pontiac to check in on the status of the property.
When Andegeko entered the office, he quickly learned that the property had been sold at a property tax foreclosure auction the previous month.
“Everyone told me that ‘This is the law, we don’t make the laws.’ They told me they’re not inventing laws, they said there is due process,” Andegeko said. “I said that when the process is so strong, you can create a situation as ridiculous as this one.”
Meisner, the county treasurer, said that Michigan’s property tax law didn’t allow him to let Andegeko redeem the home by paying the overdue fines after March 31, 2014, the property’s foreclosure deadline. He called the situation a “regrettable experience.”
Meisner encouraged Andegeko to bring a lawsuit against his father-in-law’s property management company. Andegeko balked, believing the county’s refusal to return the profits from the sale was the bigger issue.
Meisner said he hopes for a legislative fix. “I’m working with legislators now to change the Michigan General Property Tax Act to give treasurers discretion to remove properties with small balances from foreclosure, and our Michigan Association of County Treasurers is constantly working to improve the statute,” Meisner said. “I ran for county treasurer to prevent tax foreclosure and have done so successfully over 25,000 times.”
According to data collected by Loveland Technologies from the Michigan Department of Treasury, Oakland County had 6,627 tax foreclosures between 2012 and 2017. That is the third-most of any county in the state over that period, behind only Wayne and Genessee counties, which had 136,818 and 18,239, respectively.
Michigan Capitol Confidential asked Meisner what would happen if the state Supreme Court ruled that county governments could no longer keep profits from delinquent property tax sales. Such a ruling, he said, would “lead to a lot of unintended consequences.”
The people who don’t pay their property taxes on time, he said, “are generally real estate speculators who don’t always act in the community or county’s best interest. Granting these parties net proceeds from the sale could induce them to never pay taxes, while collecting rent from tenants and forcing treasurers to act as their involuntary realtors.”
Christina Martin is an attorney with Pacific Legal Foundation, a nonprofit public interest organization that is representing Rafaeli.
“The government should not be able to turn tiny debts into huge government profits by stealing home and land equity,” she said. “My goal for each of my clients is that they should receive just compensation, which is what the Constitution requires.”
In 2014, Rafaeli tried to certify his lawsuit as a class action in federal district court. The court ruled that his claim could only be heard in a state court, and in 2015, he filed suit in Oakland County Circuit Court.
That court, and later, the Michigan Court of Appeals, upheld the state’s current property tax law. Both ruled that Oakland County obtained Rafaeli’s property through a legal means that didn’t violate due process. The appeals court said that the U.S. Constitution does not require local governments to pay plaintiffs for “lawfully-obtained property.”
Rafaeli’s case — which has been joined by the appeal of Andre Ohanessian, whose property in Orchard Lake Village was foreclosed on and sold by Oakland County in 2014 — could be decided by the end of the year. The parties in the dispute will present their written arguments to the Michigan Supreme Court before the end of the month, and the high court will likely hear oral arguments in the fall.
Martin, of the Pacific Legal Foundation, said if her client doesn’t win, she will challenge Michigan’s law in federal court.
Martin also said that if the Michigan Supreme Court ruled that Oakland County did seize the property of both Rafaeli and Ohanessian without just compensation, it would be persuasive in any similar cases that may make their way to the U.S. Supreme Court. The high courts in several states have issued contradictory rulings on whether it is unconstitutional for governments to retain more than what they are owed when they sell property in tax foreclosure cases.
While the court case is ongoing, Oakland County retains possession of Rafaeli’s former property in Southfield. While it sold the property in 2014, a judge halted the transfer of its ownership. The property is now in disrepair, with plants growing out of the gutters. It also has considerable ceiling damage on the inside that is visible from the outside windows.
Andegeko admits that his family made a mistake but said the county’s remedy was too severe.
“Usually the punishment should correlate to the violation,” Andegeko said. “Yeah, people [make] mistakes, humans [make] mistakes. The problem here is the action that people took on to solve this situation.”
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.