Can a county government seize a home for back taxes, sell it for price that exceeds the tax debt, and pocket the profits?
That issue is at the heart of the lawsuit that Erica Perez filed against Wayne County and County Treasurer Eric Sabree Tuesday.
Wayne County foreclosed on the Perez family’s Detroit home in 2017 over a $144 tax debt. The county then sold the property for $108,000, according to the lawsuit’s complaint.
Perez says her family bought the property on a land contract in 2012 for $60,000. The family lives in New Jersey, but Perez says they planned to move into it eventually. In the meantime, they spent years fixing up the property and renting it out.
Meanwhile, they paid their property taxes—over $3500 worth from 2013-17, according to the lawsuit. But they inadvertently underpaid in 2014 by $144, later accumulating another $356 in interest and penalties. Perez says they never knew about the tax debt or pending foreclosure until after it happened because the Wayne County Treasurer’s office sent notices to a former address.
“It’s just like so much money was put into it,” Perez said. “All my dad’s like savings…then they just took it like, nothing.”
Christina Martin is with the Pacific Legal Foundation, and one of Perez’s attorneys. She says Wayne County had a right to collect on that debt, but that any profit it made amounts to theft of the Perez’s home equity.
“Michigan’s property tax law authorizes this sort of injustice, but the constitution and traditional rules that date all the way back to Magna Carta prohibit such government-sanctioned theft,” Martin said.
Martin says Michigan law gives counties a “perverse incentive” to foreclose on properties rather than working with homeowners, because counties can keep the profits, rather than refunding anything beyond the debt amount to the property owners.
“Wayne County has been using the sale of foreclosed properties to supplement and balance its budget, just like it used a $144 debt to foreclose on the Perez family’s property, and to get a windfall of $107,000,” Martin said.
This case is similar to one the Michigan Supreme Court has already agreed to take up. In that case, Uri Rafaeli lost his rental property to foreclosure in Oakland County after underpaying his taxes by $8.41.
Martin says the Perez case is an important addition to that lawsuit and other similar pending litigation because it presents additional legal arguments against the Michigan statute. For example, counties have defended the practice of pocketing foreclosure surpluses by calling tax foreclosure a type of civil asset forfeiture, and saying the takings amount to a kind of fine for failing to follow the law.
But, “if it is a punishment it is clearly excessive” and in violation of the U.S. constitution, argued Pacific Legal Foundation attorney David Deerson. In the case of the Perez family, “it is plainly unfair and unjust to keep the surplus, and they’ve got to give it back.”
Mario Morrow, a spokesperson for Wayne County Treasurer Eric Sabree, declined to comment on the pending litigation, other than to say, “We follow the law tooth and nail. If we do not follow the law we are in violation.”