August 5, 2016

Michigan county confiscates private property over $8 in late taxes

By Christina M. Martin Attorney

Does the Constitution protect you from the government taking your equity in your home, land, or business? That’s the question Andrew Ohanessian and Rafaeli,LLC are asking the Michigan Court of Appeals in Rafaeli v. Oakland County. Rafaeli owed the County $8 for overdue taxes, which amassed to $285 in taxes, interest, and fees when the County foreclosed. Oakland County sold Rafaeli’s property for $24,500. The County paid the overdue taxes with the proceeds from the sale of the property, and, pursuant to Michigan’s tax law, kept the surplus proceeds—$24,215—as profit. Rafaeli received none of the surplus. Likewise, Ohanessian owed around $6,000 in overdue taxes, fees, and interest when the County foreclosed. The County sold the property for $82,000 and kept all proceeds—a windfall of around $76,000.

Rafaeli and Ohanessian sued claiming that the government violated the Fifth Amendment’s maxim that government cannot take property without paying just compensation. In other words, they agree that the government could take title to their property and keep what they fairly owed the government. But when the County kept the surplus proceeds from the tax sale, it violated the Constitution by taking the surplus equity of the property without just compensation. The County argues that the Michigan General Property Tax Act does not give delinquent taxpayers the right to surplus proceeds from a tax sale; therefore the government does not take anything when it confiscates the surplus equity. The trial court agreed with the County, holding that Rafaeli and Ohanessian “forfeited” the protections guaranteed by the Takings Clause by failing to pay their debt within the time period provided by Michigan law. In response, Rafaeli and Ohanessian asked the court to amend their complaint by adding an Eighth Amendment claim, reasoning that if the confiscation was a “forfeiture,” then the Eighth Amendment’s ban on excessive fines and forfeitures should protect them. Unfortunately, the trial court denied that motion.

Today, PLF filed an amicus brief asking the Michigan Court of Appeals to vindicate property owners’ rights. As we explain in our brief, the Fifth Amendment’s Takings Clause protects a person’s equity. For example, in Koontz v. St. Johns River Water Management, a case PLF litigated, the Supreme Court held that the Constitution protects a person’s money—just like a home or parcel of land. “Equity” simply describes the fair market cash value of the property after all debts are deducted. In other words, it is equivalent to money, and the Constitution protects it. As we recently explained in amicus briefs in two other cases, Wayside Church v. Van Buren County and Coleman v. District of Columbia, the government cannot destroy these property rights by simply passing a law.

Nor can the government confiscate the surplus equity by calling it a “forfeiture.” If it was a forfeiture (and not a taking), then the Eighth Amendment’s ban on excessive fines would bar it. The Excessive Fines Clause of the Eighth Amendment forbids punitive forfeitures that are grossly disproportional to the gravity of the offense that the forfeiture is designed to punish. Here, the confiscations were clearly punitive, because they went well beyond the cost of enforcing the tax law on each plaintiff. They were also grossly disproportional to the gravity of the offense, because Rafaeli and Ohanessian did not commit a crime or a morally reprehensible action. The government’s injury should be more than satisfied by taking the amount necessary to back taxes, including interest, costs, and penalties.

James Madison wrote, “Government is instituted to protect property of every sort . . . [t]his being the end of government, that alone is a just government, which impartially secures to every man, whatever is his own.” Whether a taking or a forfeiture, Michigan’s property tax scheme fails the main purpose of government: the protection of individual liberties and property.

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