Surplus Proceeds from Foreclosure Sales Cannot Be Aggregated Under Recent Michigan Court of Appeals Opinion
The Michigan Court of Appeals issued an opinion on September 8, 2025, resulting in what the authoring judge referred to as “a new wrinkle on a recurring problem.” That “problem” being the distribution of surplus proceeds upon the sale of foreclosed property.
In Chippewa County Treasurer v David Chaveriat, the Court of Appeals found that a foreclosing governmental unit (“FGU”) “cannot aggregate the surplus proceeds from the sale of one property to offset the sale of another property” owned by the same individual. The Chippewa County Treasurer foreclosed upon 20 properties owned by Mr. Chaveriat for unpaid taxes, which the county subsequently sold. Of the 20 properties sold, 4 resulted in surplus proceeds but the remaining 16 sales resulted in either no surplus proceeds or a net loss. Though the sale of the 20 properties resulted in an aggregate net loss of $3,871.68, Mr. Chaveriat sought to recover the $2,135.52 in surplus proceeds from the 4 properties that sold for amounts above the tax debt owed.
The County argued that paying the surplus proceeds to Mr. Chavariat would result in a total loss of $6,007.20. When added to the net loss suffered from the open sale of the 20 properties, causing “the public to bear the loss incurred” on Mr. Chaveriat’s other properties, which would “unjustly enrich [Mr. Chaveriat] at the expense of the public as prohibited by [the General Property Tax Act].” The Court disagreed, however, finding that the General Property Tax Act “makes clear” that payments ordered under the Act must be made on a “property-by-property basis” and concluded that an FGU cannot aggregate the surplus sale of one property to offset the shortfall from the sale of another property.”
This decision falls in the wake of two recent Michigan Supreme Court cases, which also dealt with foreclosure sales of properties. In March, the Court issued its opinion in Yono v County of Ingham, which considered whether compensation is due when a foreclosed property fails to sell at auction, and whether the resulting absence of surplus sales precludes a takings claim. In Yono, the Court found that if a property fails to sell at auction, the government does not “take” more than it is owed, because a property owner is only entitled to surplus proceeds in excess of the taxes, fees, interest, and penalties owed. Therefore, no compensation was due. The Court distinguished Yono from cases where properties were not offered for public auction but instead were transferred to another governmental entity.
The Court addressed that other particular scenario in July, when it issued its opinion in Jackson v Southfield Revitalization Initiative. That case addressed a scenario in which properties were foreclosed under the General Property Tax Act (“GTA”) and sold for a minimum bid to another governmental unit under a right of first refusal, without having been offered for sale at a public auction. Even though there were no surplus funds from the sale, the Court found that the government retained value beyond what was sold, thus resulting in a taking requiring the payment of just compensation.
Issues related to foreclosure sales and surplus proceeds will continue to come before the Michigan courts. Mika Meyers will monitor the development of cases related to these issues and will provide updates as the courts issue opinions in the future. In the meantime, contact any member of the Mika Meyers Local Government Practice Group if your municipality has any questions.
