Michigan bills aim to reform foreclosure laws

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A bill package aims to prevent local governments from profiting from home tax foreclosures.

If passed, Senate Bill 676 and Senate Bill 1137.bills will align Michigan tax law with a July Michigan Supreme Court ruling that deemed unconstitutional what critics call “home equity theft.”

Sens. Jim Runestad, R-White Lake, Sens. Peter J. Lucido, R-Shelby Twp, sponsored the bills.

Oakland County seized Uri Rafaeli’s home in 2014 over $8.41 of initial overdue property taxes and sold the property for $24,500 – more than $35,000 less than Rafaeli paid for it – and then pocketed $24,214.

Rafaeli walked away empty handed.

The Michigan Supreme Court ruled in July that local governments withholding any surplus from tax-foreclosure sales that exceeded the amount owed constituted an “unconstitutional taking without just compensation.”

The first bill seeks to allow people to request the remaining proceeds from the sale of tax-foreclosed property through the judge who ordered the foreclosure.

Current tax law requires excess funds from property sales be deposited with the county treasurer.

Once a judge determines the amount owed to a claimant, the county treasurer would disburse the funds within 21 days. Anyone with an interest in the property could file a claim to remaining sale proceeds after required taxes, interest, penalties, and other costs have been covered.

The second bill aims to improve the foreclosure notification system, so the property owner knows of the possible foreclosure, rather than a tenant being notified in a rental property.

Lucido told The Center Square the statute he wants to enact brings equity in foreclosure — “what must be the law to protect individuals and their economic reality.”

“It literally adds the degree of protection that the Supreme Court found is necessary that if I own a piece of property and for whatever reason there’s a mortgage foreclosure or for a tax foreclosure, I should be entitled to the excess proceeds, not the county in which the foreclosure took place in,” Lucido said.

The Michigan Association of County Treasurers supports the bills.

“We want to help taxpayers who go through the unfortunate process of property tax foreclosure with fair and equitable recovery of remaining foreclosure sale proceeds,” Jennifer Nash, Livingston County treasurer and MACT president said in a statement.

“As county treasurers, we will continue to prevent foreclosure whenever possible,” Nash said. “County treasurers across the state use a variety of methods and numerous community resources to help people pay their taxes and prevent foreclosure.”

Statewide, county treasurers prevented 97.5% of property tax foreclosures in 2019, MACT said.

Daniel Dew, legal policy director for the Pacific Legal Foundation which represented Rafaeli, said the package is “a step in the right direction.”

When a property being transferred to a local government, SB 676 aims to require the local government to pay the greater of the minimum bid, which is everything that’s owed on the property, or the fair market value.

“It closes a loophole, where in theory, the government could just transfer ownership to a local government, and the local government wouldn’t have to pay anything for it,” Dew said.

SB 1137 aims to require a foreclosure notice posted on the forfeited property, a notice of a show cause, and a foreclosure hearing to explain the right of a person interested in the property to claim that person’s interest in remaining proceeds after a foreclosure sale or transfer.

Runestad told The Center Square some homeowners were in a nursing home, illiterate, or for another reason fell behind on their property taxes and lost their house.

“We’re trying in every way… to make it more user-friendly for those who fall behind on their property taxes,” Runestad said.

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