Michigan Supreme Court affirms right to compensation for home equity theft victims

Lansing, MI; July 29, 2024: Today, the Michigan Supreme Court ruled that victims of home equity theft — when government takes more than what is owed to satisfy property tax debts — are entitled to just compensation regardless of when the illegal taking occurred. 

“We are glad that the Michigan Supreme Court affirmed that government must pay just compensation when it takes more than what it is owed,” said Christina Martin, senior attorney at Pacific Legal Foundation. “Now, local governments should return their ill-gotten gains to those who had their hard-earned equity stolen.” 

In 2017, Kent County foreclosed on Matt Schafer’s home after he fell behind on his property taxes. Matt owed $5,300 on his property that was worth nearly $96,000. While he was out of town for National Guard drills, the County took his property and sold it at auction for $51,500, but instead of keeping only the amount Matt owed, the County kept every penny.  

However, in July 2020, the Michigan Supreme Court ruled in Rafaeli v. Oakland County that home equity theft is unconstitutional. And in May 2023, the U.S. Supreme Court ruled the same in Tyler v. Hennepin County. 

After Rafaeli was decided, Matt filed a class action lawsuit against Kent County in state court seeking the surplus sale proceeds that were rightfully his. But the County argued that because Rafaeli did not specifically mention retroactivity, the County doesn’t have to pay for home equity theft committed before the decision. The trial court disagreed and ruled in Matt’s favor. The Michigan Court of Appeals affirmed, but the County asked the state supreme court to weigh in. 

And today, the Michigan Supreme Court affirmed the lower court’s ruling, holding that “Constitutional takings require just compensation. And retroactive application of Rafaeli merely requires returning money to landowners that was taken by counties . . . . Rafaeli must be applied retroactively to timely filed cases not yet final at the time of the decision.” 

The court went on to say that “Requiring just compensation for public use of private property is a basic right lying at the heart of rule-bound government in Michigan and the United States more broadly.” 

The case is Matthew Schafer, et al. v. Kent County, MI.