Won: Sixth Circuit rules Michigan’s tax foreclosure scheme is unconstitutional

When Tawanda and Prentiss Hall fell behind on their property taxes, they did what many financially strapped homeowners do: set up a payment plan with the local government. They didn’t want to lose the Southfield, Michigan home where they lived with their children.

The Oakland County treasurer ended the plan, however, with the tax debt standing at $22,642, and foreclosed on their home. The Halls were shocked to learn that the foreclosure took from them not only the value of debt but every penny of equity they had built up in the house. Instead of selling the house at public auction, paying off the debt, and returning the surplus (minus interest and penalties) to the homeowners, the county used the Halls’ money to enrich a private company, Southfield Neighborhood Revitalization Initiative, LLC, managed by City of Southfield officials.

Through a series of legal transactions, the county took the Halls’ home (and the homes of seven other homeowners party to this case) and transferred it through the City of Southfield to the Revitalization Initiative, which sold it for more than $300,000. The Halls received none of the difference between the debt they owed and the sales price.

This public-private arrangement was set up in 2016 through a city resolution. Southfield takes advantage of state law allowing cities a “right of first refusal” to buy foreclosed homes from the county for the cost of tax debt. The Southfield Non-Profit Housing Corporation reimburses the city for the amount of the tax debt and turns the properties over to the for-profit Revitalization Initiative—for $1—to be fixed up and sold.

The Detroit News reported that the company generated as much as $10 million from 138 properties from 2016 to 2019 after covering more than $2 million in tax debts to acquire the properties from the city. The former owners of these properties lost everything and received nothing from the surplus value of the properties taken from them.

One court has called the “troubling” scheme “shocking to the conscience” and which “rightfully breeds distrust among the electorate.” It is surely unjust. A home’s equity is just as much property as a home itself and is just as protected by the Constitution. When the government takes private property to satisfy a tax debt, it should take only what is owed. The Constitution demands that government refund or pay just compensation for any surplus.

In the meantime, Tawanda fought back. Represented by PLF at no charge, she and seven other former property owners sued in federal court to restore their right to just compensation and to end the unjust enrichment of others at their expense.

The case went before the Sixth Circuit Court of Appeals in July and on October 13, the court, in an opinion by Judge Raymond Kethledge, ruled that the government violated the Constitution when it took the homes of Tawanda and other plaintiffs to satisfy unpaid property tax debts.

The win finishes what PLF started in Rafaeli, LLC v. Oakland County, when the Michigan Supreme Court ruled unanimously to end home equity theft through government foreclosure auctions.

This case is the latest in PLF’s ongoing work to defeat home equity theft across the country.

What’s At Stake?

  • Government can take property to collect unpaid taxes, but taking more than it is owed is legalized home equity theft.
  • Home equity is private property. Delinquent property tax forfeiture neither wipes out equity nor relieves government’s obligation to pay just compensation.

Case Timeline

October 13, 2022
March 07, 2022