DETROIT (AP) — The Michigan Supreme Court said Monday that its 2020 decision stopping local governments from keeping cash windfalls from the sale of foreclosed homes can be applied retroactively, meaning that hundreds of millions of dollars could potentially be returned to people who lost properties over unpaid taxes.
“It affects tens of thousands of people,” said attorney Phil Ellison, who represents former property owners.
For years, counties kept profits from the sale of foreclosed homes or land — even if the leftover cash far exceeded the amount of unpaid property taxes.
For example, Uri Rafaeli owed $8.41 in taxes on a rental property in Southfield. The bill grew to $285 with penalties and interest. Oakland County sold the house for $24,500 but kept the balance, which was legal at the time.
The Supreme Court in 2020 said the practice violated the Michigan Constitution. And now the court said the ruling can be applied retroactively to foreclosures that happened before the opinion was released four years ago.
“This case involves governmental violation of the constitutional rights of numerous individuals,” Justice Brian Zahra wrote for the majority. “Such profound interests weigh strongly against contrary interests” of local governments.
Zahra said “we are not without sympathy” toward communities that kept the surplus cash because state law had allowed it.
“Nonetheless, while the problem originated with the Legislature,” he wrote, “at the foundation of our government is the precept that no state officer or local government can justify a constitutional violation on the basis of a statutory directive.”
The Michigan Municipal League, which represents local governments, argued against making the 2020 decision retroactive, saying communities shouldn't be penalized for following what was allowed under law. Complying with this ruling could cost hundreds of millions of dollars, they warned.
“The result is potential fiscal chaos across the state, as local governments will be forced to either cut services or raise taxes and fees to make up the holes in their budgets,” the group said in a court filing.
