Imagine losing your property, and more than $20,000 in equity, over less than $10. That’s what happened to Uri Rafaeli of Southfield, Michigan, in Oakland County.
When Oakland County seized Rafeili’s house because of $8.41 in accidentally underpaid taxes, the county didn’t just recoup the lost tax money and any added fines and fees. Instead, the county kept the entire $24,500 it earned from the sale of his property. When the same county took Andre Ohanessian’s home over a $6,000 past-due bill, the county likewise made a profit of $82,000.
Earlier this month, an attorney for Rafaeli and Ohanessian told Michigan’s Supreme Court that the men should get their equity back. “It's kind of like, how would you like to pay that $8.41. Would you like to pay by Visa, MasterCard, cash, or your house?” said Christina Martin, an attorney with the Pacific Legal Foundation who represents the plaintiffs in Rafaeli LLC v. Oakland County.
“I think we all recognize that if a private party did that, that would be illegal,” she added. The Pacific Legal Foundation was created in 1973 “as the first public interest law firm dedicated to the principles of individual rights and limited government,” according to the organization’s website.
Rafaeli and Ohanessian aren’t alone. According to a Nov. 6 report by the nonprofit Bridge news service about the case, Michigan counties have foreclosed on more than 177,000 properties in the state since 2012. And while there aren’t any records of how many times counties have reaped equity windfalls via past-due tax sales when foreclosing on Michiganders’ homes, the fact remains that Michigan law allows the counties to do just that.
Michigan is also not alone in allowing counties to make a windfall when foreclosing on properties with past-due taxes. According to Pacific Legal, Michigan is one of 13 U.S. states that practice what the foundation calls “home equity theft.” Some of those states add insult to injury by selling foreclosed properties to private investors, sometimes for a fraction of the taxes owed. Those investors, in turn, make a killing without having to share a penny of any of their profits with the original property owner.
In Arizona, a disabled veteran is involved in a fight to keep his mobile home after Maricopa County made a clerical error and didn’t log his 2017 property tax payments until his home was auctioned off. In Great Falls, Montana, Gary Guidotti is now living in an unheated motor home after the county confiscated his four properties, including his home. Guidotti owed $1,125.45 on his home when the county confiscated it and sold the house to an investment company for $667.20.
Four years later, Guidotti’s home was valued at $139,300. He hasn’t received a penny of the difference between the amount of taxes he owed and the profit the investment company received from selling his house.
According to Pacific Legal’s Miller, counties that take property from people with overdue tax bills and hand that property over to private investors are violating the U.S. Constitution twice over. “First, (counties are) taking more than they are rightfully entitled to, and two, they're taking private property for a private use,” she said.
In May, Montana’s governor signed a law that will, among other things, protect Montanans from losing the equity from their property when it’s confiscated for past-due taxes. A similar proposal in Michigan hasn’t made it out of committee since being introduced in February.
Miller told Daily Kos she has heard that, in some cases, county treasurers have “pushed back very hard” against legislative proposals to force them to give up equity they seize when taking a property for past-due taxes.
That fight is certainly in evidence in Michigan, where an attorney for Oakland County told the state’s Supreme Court justices that a ruling requiring counties to surrender the extra equity windfall from property tax foreclosure sales would “ruin local governments,” according to a Nov. 8 Crain’s Detroit Business report. The attorney, John Bursch, told the court that $2 billion is at stake and that "There are currently class actions pending in all 83 county circuit courts and in our federal courts. ... That will come right out of schools, roads, police, firefighters and other basic services."
According an April online report by the Michigan Association of Counties, Michigan’s state government has shorted counties by $2.4 billion in revenue-sharing payments since 2004. Last month alone, the Association reported that counties are at risk of losing $60 million for specific programs as a result of the Republican-initiated budget dispute with Democratic Gov. Gretchen Whitmer, with overall revenue sharing slated to increase by just 2.3%, or $5 million.
Michigan Association of Counties director Steve Currie didn’t respond to Daily Kos’ requests for an interview.
Dawn Wolfe is a freelance writer and journalist based in Ann Arbor, Michigan.
This post was written and reported through our Daily Kos freelance program.