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Lawsuit aims to claw back leftover funds kept by Michigan counties after foreclosures

A foreclosure sign
Wikimedia Commons
A foreclosure sign.

A federal lawsuit against more than half of Michigan’s counties is seeking to recoup surplus funds kept by local governments after foreclosures.

After treasurers auction off a foreclosed property, they typically use proceeds from the sale to cover unpaid taxes plus interest and fees owed on that land.

But sometimes there’s money left over, which some governments would pocket. That’s until the Michigan Supreme Court ruled on July 17, 2020 that keeping those funds was unconstitutional.

Donald Visser is an attorney who’s suing to get those extra funds returned to people whose properties were sold mostly in August and September of 2020.

He says they never had a meaningful chance to recoup their money. Their properties were auctioned off after the Supreme Court decision but before a deadline had passed for filing a notice of their intent to claim their extra funds as outlined in a Michigan State law, called Public Act 256, that was approved in December 2020.

"There's just simply no way to comply," he said. "So it's just a phantom requirement that gets in the way of recovering what belongs to these taxpayers."

Visser is seeking class action status for the lawsuit. He says it could potentially apply to thousands of people who may be owed several million dollars total in surplus fees from properties auctioned off across Michigan in 2020.

The suit also asks a judge to declare Public Act 256 unconstitutional, by arguing it gives unequal treatment to people who had their properties foreclosed upon in the second half of 2020 versus later on.

“Nothing could be more unconstitutional in my mind, than something that takes away your property without that ever giving you a chance to have it recovered," Visser said.

Ingham and Eaton are among the 44 counties being sued.

Eaton County Treasurer Bob Robinson, who also leads the Michigan Association of County Treasurers, says treasurers make every effort to prevent foreclosures.

Before the Supreme Court ruling, Michigan counties were allowed to use money left over after tax foreclosures to help balance their budgets by putting that money into their general funds.

But Robinson said, before the ruling, Eaton County would deposit those proceeds into a dedicated fund used to cover costs of rehabbing other foreclosed upon properties.

"We have never profited from a tax foreclosure," Robinson said, referring to Eaton County. "If the court rules, as in some of these suits that are going on, that surplus funds need to be paid back to their previous owners, then we would do that."

The lawsuit filed late last month asks counties to reimburse people for costs including attorney fees and at least three times the amount of the surplus proceeds.

Visser says most of those affected by the foreclosures were economically disadvantaged.

"When this process took place, a lot of them were quite sick or had, oftentimes, other issues going on (like) divorces," he said. "When the counties or the state take away what little left these people have, it seems to me to be immoral. It doesn't comport with constitutional guarantees, which say that government can't take your property without just compensation."

Sarah Lehr is a state government reporter for Wisconsin Public Radio.
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