Michigan Supreme Court foreclosure decision could take a bite out of county budgets

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A 2020 opinion from the Michigan Supreme Court to stop local governments from keeping the excess proceeds from the sale of foreclosed homes will apply retroactively after a court opinion was released Monday, opening the gates for former property owners to recuperate funds.

The 2020 opinion found that county governments could no longer partake in the “unconstitutional” practice of keeping excess funds from the sale of the property exceeding the value of the property taxes owed before foreclosure.

But the opinion issued this week says its previous decision will apply retroactively and though state law previously allowed for the keeping of excess funds, the laws themselves had been allowing the unconstitutional practice and can’t be upheld.

“Despite the robust history protecting individuals from government taking of surplus proceeds and without any authority to the contrary, the Michigan Legislature established procedures permitting the transfer of absolute title to FGUs and the subsequent retention

“We are not without sympathy to the fact that local [Foreclosing Governmental Units] FGU’s were merely exercising the authority granted to them by the {General Property Tax Act} GPTA when enforcing tax foreclosures and retaining surplus proceeds. The GPTA clearly gave the FGUs the right to keep and utilize these proceeds for government use, and local governments undoubtedly engage in vital operations with limited budgets,” the Supreme Court opinion released on Monday said. “Nonetheless, while the problem originated with the Legislature, 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.”

Efforts from counties to fight retroactivity of the 2020 decision are “ineffective,” the opinion says and are “actively counterproductive for the proper administration of justice.”

In terms of payments for individuals who had the money from foreclosure sales taken by their local county before the 2020 decision, language in the opinion recognizes that it could cost local municipalities heavily and impact local budget decisions in the future.

Michigan Association of Counties Executive Director Stephan Currie said counties will seek state funds to offset the costs.

“Counties adhered to the law until the previous foreclosure statute was found unconstitutional, but now these counties face significant financial penalties,” Currie said. “The cost of retroactive liability across the state remains unknown at this time. The Michigan Association of Counties will collaborate with the Legislature and other interested parties to seek financial assistance from the state to address these obligations on our 83 member counties.”

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