Civil forfeiture abuses continue, the property tax edition. No crime required, and also no refund of the excess proceeds when they sell your house out from under you for a few bucks of back interest. Homeowners in MA, MI, MN, ND and OR - you have been warned.
last year the Michigan Court of Appeals held that a county government could use civil asset forfeiture—the same legal process used by police to confiscate drug lords’ mansions—to seize a modest rental property Mr. Rafaeli owned because he accidentally underpaid his property taxes by $8.41.
Mr. Rafaeli bought the house through his business for $60,000 in 2011. Later that year he inadvertently underpaid his property’s taxes by $496. When he learned of his mistake in 2013, Mr. Rafaeli attempted to pay the debt in full but failed to account for the interest that had accumulated since he received the bill. He came up $8.41 short.
Unaware of his error, Mr. Rafaeli went on to pay his taxes in a timely manner in subsequent years. Nevertheless, in February 2014 Oakland County foreclosed on the property to collect the tiny debt, along with $277 in penalties, additional interest and fees. Six months later the county sold the property at auction for $24,500 and refused to refund Mr. Rafaeli any of the profits.
Mr. Rafaeli’s story is all too common in the Wolverine State. Michigan’s General Property Tax Act requires government entities like Oakland County to take property for unpaid taxes—no matter how small the debt—and to pocket all proceeds from their sale. In most states when the sale price of a tax-distressed property exceeds the debt owed to the government, the surplus is refunded to the property’s former owners. But Michigan profits off the misfortunes of property owners like Mr. Rafaeli, as do Massachusetts, Minnesota, North Dakota and Oregon.
Yeah the law should not allow the government to keep all the money from a foreclosure sale.
But yeah I think glitch99 is correct in thinking that there were many notices that were ignored or not received by Mr Rafael due to his fault. WSJ is presenting a pretty one sided story and doesn’t explain how/why the guy didn’t know … and if the government had failed to notify him then there would not be any question of the legality it would be a slam dunk illegal action.
While he should have paid his taxes, the punishment does not fit the crime.
Even if the state law didn’t allow the government to keep ALL the profit, they still should not be foreclosing and selling a property due to a relatively small debt.
Foreclosing is fine, there has to be security in a secured debt (which property tax is),andit doesnt matter if it’s $100,000 owed or $1 owed. The only real issue here is them keeping the full value of the sold property, instead of just what was necessary to cover the debt and collection costs. Of course, assuming there was proper notification that went ignored.
If I owe $8 in interest the gubment shouldn’t take my house. Thats stupid.
The only reason they do that is that they get to pocket all the equity.
I’m not saying you should allow deadbeats to get away with owing small amounts without consequence. But its more reasonable to fine the deadbeat, pile up interest, put a lein on the house, etc than to initiate a foreclosure.
Such a foreclosure over $8 would make no financial sense for the government if they couldn’t seize all teh equity and seizing all the equity is clearly unjust.
I don’t know about how MI does property tax notifications, but it seems like this is a pretty fast time frame.
Mid 2011 buy property
2012 probly pay for 2011
2013 realize you didn’t pay enough, pay nearly all
2014 too late, foreclosed and sold
Of course I don’t think he shouldn’t pay the interest or even the fees, but the bad part IMO is
Foreclosing over a very small amount, several $100 even with extra fees and interest
Keeping all the surplus from the home sale
Also, I’m no expert on the MI real estate market or foreclosure sale discount, but he paid $60k for the property in 2011 and in less than 3 years they sold it for ~$25k, a 60% loss. I wonder if there’s any relation between the people involved in the foreclosure process and the party who bought his house.
I guess the final legal outcome is still pending:
The Michigan Supreme Court agreed last month to hear Mr. Rafaeli’s case and will decide whether the Court of Appeals erred in its ruling that Oakland County had violated neither the Takings Clause nor the Michigan Constitution’s “just compensation” requirement.
Note the article’s author is the lawyer representing the victim.
Ms. Martin is an attorney with Pacific Legal Foundation, a nonprofit public interest organization providing pro bono legal representation to Mr. Rafaeli.
Its in Oakland county MI which is part of metro Detroit.
Few years ago they couldn’t even give away foreclosed houses in Detroit. It usually costs more to tear them down than they’re worth to anyone.
Its not surprise to me that a foreclosure in that city has a huge discount.
yeah,… talk about one sided. But it is clearly in the opinion/commentary section.
I don’t think its a “scam” exactly. Its just an awful law.
I could be wrong but I don’t think the beaucrats working in the government are setting out to steal homes from old people. Individual government employees have no personal motive to do that. Nobody is getting rich off it. They’re not even benefiting individually. They’re just doing their jobs and following the badly written law.
But yeah maybe I’m wrong and theres some guy who works in “waste management” who has a brother in law who’s in the government office and there is an illegal scheme really motivating such foreclosures.
If it wasnt clear, I agree the whole “keep all the proceeds” part is wrong. But while conceptually it’s stupid to foreclose over an $8 debt, it is in fact the only way to be fair to everyone. Otherwise, where do you draw the line? Why does that guy get to not pay his tax yet keep his home, while when I dont pay my tax they take it from me, when I only owed $X more than him?
At some point, either due to carelessness or willful ignorance, he crossed the deadline to initiate foreclosure, and should be subject to the same consequences as everyone else. It’s not like they spontaneously made up this action purely out of spite over $8, it’s a well established consequence that can easily be avoided.
You can easily and fairly draw liens and have different levels of enforcement and different consequences. e.g. We have different levels of fines for speeding 1, 5, 10 or 25 MPH over the limit.
Being delinquent $8 for 1 year is a far different thing then failing to pay $8000 of taxes over a 5 year period.
They don’t have to have the same punishment.
There are other possible consequences than foreclosure.
Regardless, the consequences aren’t the same here. Someone with $10 of equity in their home who doesn’t pay the $8 tax suffers a penalty of $2. Someone with $100 of equity who doesn’t pay the $8 tax suffers a $92 penalty.
In fact, it’s a bizarre punishment since the same person with $100 equity who doesn’t pay a $90 tax suffers a $10 penalty. The more you fail to pay, the less your penalty is.
Again, I clearly agreed about the whole “state keeps everything” rule, that is bizarre and very unfair. But “dont pay your taxes, get foreclosed” is pretty straightforward, regardless of the amount left unpaid. The only flaw I see is that the proceeds of the sale, that exceed the balance due, should revert back to the owner.
Isnt buying tax liens a thing? I wonder if, in a state like Michigan, a third party buys a small tax lien, are they then entitled to keep the full proceeds of the foreclosure sale like the state would’ve?
Foreclosure sales drive prices down. Reduced prices means lower assessments for property taxes. Which results in the government getting less money.
As for not paying your property taxes, I don’t understand why you think there has to be a set way to handle it no matter how much is owed. It’s essentially a collection matter. You just add the amount owed with interest, maybe a penalty, and collect it the next year. If it’s a large amount owed, you put a lien on property, maybe even levy accounts or garnish wages.
Is that really true though? I’m far from a real estate expert, but I thought the property taxes were designed to bring in a fixed budget and they would just raise the % tax to compensate if property assessments went down.
Also, I don’t know about whatever bad part of town this property was in, but did it really get 60% worse in Detroit during that 2-3 years? It’s been bad there for a while now.