Wayne County may have to pay back $100M+ in proceeds from tax auction

The Michigan Supreme Court decided in 2020 that municipalities could no longer collect the profits from properties they sell through tax foreclosure.

On Monday, the court unanimously ruled that decision, Rafaeli v. Oakland County , applies retroactively. Counties that sold foreclosed properties before 2020 now have to give back what could amount to hundreds of millions of dollars to their former owners.

“Requiring just compensation for public use of private property is a basic right lying at the heart of rule-bound government in Michigan,” the court wrote .

Those looking to recover proceeds from the sale of their property will still have to file claims with the taxing jurisdiction that issued the foreclosure . They would then be eligible for the difference between the taxes owed and the final auction sale price. The Supreme Court ruling says municipalities must provide a “reasonable time” to file claims but did not specify a cutoff date.

The implications in Wayne County could be significant. During oral arguments in March, attorney Matthew Nelson estimated Wayne County could have to repay $130 million from sales between 2013 and 2020.

The Wayne County Treasurer’s Office foreclosed on nearly 25% of all Detroit properties in the 2010s, fueled in part by widespread overassessment of property values , which inflated tax bills.

A spokesperson for Wayne County did not respond in time for publication.

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Tax justice advocates praised the decision, saying overtaxed Detroiters deserve compensation for losing their homes.

“This is the kind of progress we need to see in the compensation fight,” said Joanna Velazquez, campaigns manager with Detroit Action. “Counties should definitely be taking some of the responsibility to redirect funding back to the community.”

Velazquez added that the decision won’t make people who lost their homes whole, and that Detroit Action will continue to call for other forms of reparations.

Alex Alsup, vice president of research and development at parcel data company Regrid, has extensively studied and written about tax foreclosure in Wayne County. He says the lowest-value homes in Detroit were the most likely to be overassessed, which means the vast majority of tax-foreclosed property owners will collect little to nothing.

Speculators, who bought cheaply from the annual Wayne County Tax Auction and subsequently neglected to pay their property taxes, will likely see the biggest benefit due to rising property values. The first tax foreclosure cycle in Wayne County following the 2020 ruling suggested speculators had the most to gain .

“By the time those properties may have been tax foreclosed again, real estate prices had continued to recover — meaning it was more likely that windfall profits would be generated,” Alsup said.

Alsup also argued that Monday’s decision does nothing to address the “perverse incentive” municipalities have to foreclose on people’s homes.

“The primary generator of profit in the tax foreclosure system for Michigan counties is not windfall profits at auction: It is delinquent taxpayers paying off their taxes plus 18% interest, penalties, and fees,” he said. “That (system) is completely intact.”

Wayne County may have to pay back $100M+ in proceeds from tax auction · Outlier Media