February 28, 2017

Michigan exploiting property owners’ hardships to enrich government

By Christina M. Martin Attorney

This week, PLF filed a petition asking the full Sixth Circuit Court of Appeals to rehear the takings case of Wayside Church, Henderson Hodgens, and Myron Stahl. All three lost their property to Van Buren County after they fell behind on their 2011 taxes. The County foreclosed on their properties and sold each for significantly more than taxes owed, and pocketed the excess proceeds as a windfall to the government. Wayside Church owed $16,750 in taxes, penalties, fees, and interest. The County sold it for $206,000, more than 12 times the church’s debt. Similarly, the County sold Hodgens’s property for $47,750, to pay a $5,900 tax debt; it sold Stahl’s property for $68,750 to cover a $25,000 debt. After paying off the taxes with the proceeds, Van Buren County refused to return the surplus to its rightful owners.

Most states require government to refund the excess proceeds from the sale of property taken to pay overdue taxes. But Michigan’s General Property Tax Act actually prohibits counties from refunding the excess proceeds. The law results in thousands of property owners losing their valuable property to pay relatively small tax debts.

Wayside Church, Hodgens, and Stahl filed a lawsuit in federal court, alleging that government violates the Takings Clause of the Fifth Amendment when it kept the surplus proceeds from the sale of foreclosed properties. The district court dismissed the suit, holding the Takings Clause did not protect Wayside Church when they failed to pay their taxes on time. On appeal, a panel of Sixth Circuit judges dismissed the takings claims, holding 2-1 that under the Tax Injunction Act and Williamson County Reg’l Planning Agency v. Hamilton Bank of Johnson City, the plaintiffs should have filed their federal constitutional challenges in state court.

The court was wrong. As Judge Kethledge explained in his dissenting opinion, Michigan courts do not offer an adequate remedy for the plaintiffs. If they file in state court, they have, at best, an uncertain remedy. At worst, state court may offer no remedy at all for the unconstitutional taking. Federal precedent makes clear that even under Williamson County, the court should hear the takings claim. The Tax Injunction Act is not an obstacle either, because vindication of the plaintiffs’ constitutional rights will not impede tax collection. They do not seek to stop government from taking and selling property to pay delinquent taxes. They only seek a refund of their equity that was not collected to pay either a tax, penalty, interest, or fee. The full Sixth Circuit should rehear the case and find that the taking of our clients’ excess equity is not only unjust, it is unconstitutional. You can read the rest of our argument in our petition here.

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Wayside Church v. Van Buren County, Michigan

When Michigan property owners fall behind on their taxes, the state allows counties to seize and sell the land, and keep all sale proceeds–no matter how small the tax debt or how valuable the property. Van Buren County reaped a major windfall after selling three properties with relatively small tax debts, including a church. PLF believes local governments violate the Takings Clause of the Constitution when they keep the surplus, and has asked for Supreme Court review.

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