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Can the County require a Township to pay the assessed value of foreclosed property rather than the amount owed in back taxes?

Yes, recent cases and legislation have impacted the foreclosure process.

In a published Court of Appeals decision, the Court analyzed the retroactive application of changes to the tax foreclosure process that occurred under the Michigan Supreme Court’s decision in Rafaeli, LLC v Oakland Co, 505 Mich 429 (2020). Under Rafaeli, our Supreme Court explained foreclosing governmental units (i.e., the state or certain counties) were unconstitutionally retaining surplus proceeds after tax-foreclosure sales. Following that decision, the Legislature enacted Public Act 255 of 2020, which made various changes to the foreclosure process, including codifying the decision in Rafaeli by providing a process to mitigate against the retention of surplus proceeds.

As explained by the Court of Appeals in Proctor v Saginaw County, ___ Mich App ___ (January 6, 2022; Docket No 349557), Public Act 256 now provides a process under MCL 211.78t(1) where an individual may submit a claim for surplus proceeds that remain from a specific property sold through the tax foreclosure process. Surplus proceeds are those proceeds that exceed the “minimum bid”—a specific defined term that includes the unpaid taxes and additional fees incurred through the tax foreclosure process.

These decisions and Public Act 256 have directly impacted townships when purchasing tax-foreclosed property prior to the tax auction. Traditionally, if the state elected to not purchase certain foreclosed property, the township could purchase property for the “minimum bid,” which was often only the back taxes and administrative costs related to the civil foreclosure proceeding (which would include the township’s back taxes). However, in an effort to mitigate against potential constitutional takings claims and comply with portions of Public Act 256, townships are now told to pay “the greater of the minimum bid or the fair market value of the property.” MCL 211.78m. As a result, if they elect to purchase some properties prior to the tax auction, townships typically pay the total assessed value of tax-foreclosed properties. It is a significant change to protect individual constitutional rights in surplus funds that will have a quantifiable impact on townships attempting to acquire tax-foreclosed property.

 

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