In Michigan, when landowners fail to pay their property taxes, local governments take the property, sell it, and keep all the profits—no matter how small the debt or how valuable the property. As a result, local governments are profiting handsomely over the misfortune of their residents. For example, a few years ago, Wayside Church lost a piece of land worth a little over $200,000. Even after deducting outstanding tax debts, interest, penalties, and fees, Van Buren County made $189,250 in profit by foreclosing and auctioning the property. If you’re a government official having difficulty balancing a budget, this probably sounds too good to be true. But for the rest of us, this should be troubling to say the least.
PLF recently filed an amicus brief supporting Wayside Church in the U.S. Court of Appeals for the Sixth Circuit, explaining that Michigan’s tax scheme violates the Takings Clause of the U.S. Constitution. The Takings Clause provides that government shall not take property unless it is taking the property for a public use and unless it pays just compensation. In the property tax context, that should mean government can take your property to pay overdue taxes, interest, and penalties. But after deducting those debts, the property owner should be compensated for the excess equity that the government took to pay the debt. In other words, Wayside Church should be paid the extra $189,250 profit that the County made from selling the property. Indeed, most states recognize that dispossessed property owners should be compensated the surplus proceeds from the sale of foreclosed property.
The government will likely argue that Wayside Church “forfeited” its rights when it failed to pay its taxes on time. But as Todd Gaziano and I explained in the Washington Post a few months ago about a similar scheme in Washington, D.C.,
If government officials have the final say on what constitutes a forfeiture of constitutional rights, they could not only take property without paying compensation but also “redefine” when other constitutional rights are forfeited. If so, the failure to shovel snow from your sidewalk could justify the seizure of your home and the denial of your voting rights. Neither is true.
Washington, D.C. changed its confiscatory tax law when the Washington Post exposed how the government was profiting at the expense of the sick, elderly, and poor, like Benjamin Coleman, who lost his $200,000 home over a $134 tax debt. Citizens were outraged and pressured the government to amend the law to better protect its residents’ rights. It would be nice to see Michigan abandon its unconstitutional law and compensate its victims. Otherwise let’s hope the Sixth Circuit steps in to protect Wayside Church’s constitutional rights.