In October, the U.S. Sixth Circuit Court of Appeals delivered an important victory for property owners. The ruling also set the stage for a property rights battle that will soon be settled by the U.S. Supreme Court.
The 3-0 decision in Hall v. Meisner affirmed what we already knew, that the government can take property to collect unpaid taxes. But taking more than what’s owed is unconstitutional.
The Michigan Supreme Court said as much in 2020, when it recognized that a home’s equity is just as much private property as the home itself and is equally protected by the Constitution.
In that case, Rafaeli v. Oakland County, Michigan’s highest court threw the book at Oakland County and then-treasurer Andy Meisner, ruling unanimously that taking Uri Rafaeli’s home — over a mere $8.41 in unpaid taxes —and keeping the equity was a property-taking in violation of the Fifth Amendment.
Home equity represents life savings and retirement for a lot of people, yet Michigan law permitted the confiscation and retention of any remaining equity from foreclosed homes. Consequently, the equity racket became an indispensable boon for county coffers.
To their credit, however, state lawmakers followed the ruling and amended the Michigan General Property Tax Act to limit local governments’ lawful cut of foreclosure sales to tax debts.
But what happens if a foreclosed property never makes it to auction?
Justice David Viviano was the lone member to acknowledge that Rafaeli left open an enormous potential for unscrupulous end-arounds to steal home equity, including one whereby cities can acquire foreclosed properties before they get to auction, pay off the county’s tax debt, and enrich themselves.
In Hall, Oakland County and the City of Southfield put this loophole to use when they worked together to take Tawanda Hall’s home equity and enrich a private company, the Southfield Neighborhood Revitalization Initiative, LLC, which is managed by city officials.
Specifically, the county foreclosed on her home for overdue property taxes. But instead of selling the property at auction, the county sold it to the city for the price of the tax debt, roughly $23,000. The city then transferred the property to the Southfield Non-Profit Housing Corporation, which reimbursed the city for the tax debt and transferred it to the Revitalization Initiative for $1.
The private company then sold the property for more than $300,000, landing a windfall of roughly $285,000.
One court has called the scheme “shocking to the conscience.” But to fully describe it and the effects it has had on real people deserves far more column space than can be spared here.
What is important to explain, though, is the millions of dollars in stolen home equity Michigan has accumulated since 2016. The Detroit News reported in 2021 that the Southfield Neighborhood Revitalization Initiative banked as much as $10 million between 2016 and 2019 alone. And a recent study by my colleagues at Pacific Legal Foundation (PLF) found that from 2014 through 2021, 7,900 homes and more than $777 million in life savings were lost to home equity theft throughout the country.
Governments and private companies across the country are getting rich at the expense of people like Hall, who made every effort to pay her tax debt. She tried setting up a payment plan with the county and buying back the title to her home, but nothing worked. Instead, around $285,000 in home equity was stolen from her.
Tawanda and seven other Southfield homeowners who fell prey to this scheme sued in federal court to end the unjust enrichment of others at their expense.
PLF took over the case at no charge and won at the Sixth Circuit Court of Appeals.
Avoiding tax sales altogether does not let the government off the hook from its obligation to provide just compensation to property owners. Justice Viviano recognized this, and so did the three-judge panel, led by Judge Raymond Kethledge.
“The County forcibly took property worth vastly more than the debts these plaintiffs owed, and failed to refund any of the difference,” wrote Kethledge in reversing the lower court’s dismissal. “In some legal precincts, that sort of behavior is called theft.”
Tawanda’s victory is a crucial step toward ending government-sponsored home equity takings across the country. But our work is not done. In fact, the U.S. Supreme Court recently agreed to hear another PLF case that could end home equity theft forever, not just in Michigan, but nationwide.
Individuals who have lost their equity under this scheme in Michigan and throughout the country deserve vindication.
This op-ed was originally published in The Detroit News on February 16, 2023.