Michigan Court of Appeals Concludes That Statutory Process to Claim Surplus Proceeds Resulting From Tax Foreclosure is Not Unconstitutional
The Michigan General Property Tax Act, Public Act 206 of 1893, as amended (the “GPTA”), allows a foreclosing governmental unit, which is usually the county treasurer, to seek a judgment of foreclosure and ultimately sell real property at a foreclosure sale for delinquent taxes. However, when properties are sold for delinquent taxes, the proceeds from the sale often exceed the amount of the delinquent taxes. For example, if a property with $25,000 in delinquent taxes is sold at foreclosure sale for $100,000, there would be $75,000 in surplus proceeds over the amount of delinquent taxes. Before 2020, it was unclear whether the county treasurer could keep that money and transfer it into a county fund. In 2020, the Michigan Supreme Court concluded that the former owners of the property had a vested property right to the surplus proceeds resulting from a tax foreclosure sale of their properties. It also stated that property owners were entitled to have the surplus proceeds returned to them.
In response to Michigan Supreme Court decision, the Michigan Legislature passed amendments to the GPTA including the addition of MCL 211.78t, which contains procedural requirements that a former property owner must follow in order to claim surplus proceeds for a property sold at a tax foreclosure sale after July 17, 2020. It requires a former property owner to submit a notice of intention to claim the surplus proceeds to the foreclosing governmental unit by July 1 immediately following the effective date of foreclosure of the property. After filing the notice of intention to claim the surplus proceeds, the former owner must continue to follow all of the procedural requirements in the GPTA in order to receive the surplus funds.
Recently, an estate of a former property owner whose property was sold at tax foreclosure sued a county treasurer who had retained the surplus proceeds, and argued that MCL 211.78t was unconstitutional because it violated due process. In that case, the relevant property was sold at a tax foreclosure sale in August 2021, but the estate of the former property owner did not file a notice of intention to claim the surplus proceeds by July 1, 2021. Instead, the estate filed a motion to force the county treasurer to distribute the surplus proceeds from the sale in the spring of 2022. The Michigan Court of Appeals concluded in a published opinion that MCL 211.78t was not unconstitutional and specifically noted that there was “no room for a successful Takings claim,” under the United States or Michigan Constitutions.
The case, In re Petition of Barry Co Treasurer for Foreclosure, confirms that MCL 211.78t is the sole mechanism by which a former owner may obtain surplus proceeds from a tax foreclosure sale. Governmental foreclosing units are not required to return surplus proceeds unless the former owners follow the requirements to claim surplus proceeds under the GPTA. Local government officials are encouraged to contact Mika Meyers with any questions regarding surplus proceeds resulting from the tax foreclosure process or any other question involving the tax foreclosure process.
