The Michigan Supreme Court recently issued two decisions that largely impact takings within the context of foreclosures. The Takings Clauses found in Michigan’s and the federal Constitutions both protect privately owned property from governmental interference without just compensation. (Const. 1963, art. 10 § 2; U.S. Const. amend. V). Following our state Supreme Court’s ruling in Rafaeli, LLC v. Oakland Co., 505 Mich. 429; 952 N.W.2d 434 (2020), the state Legislature amended portions of the General Property Tax Act (“GPTA”), providing a procedure to claim surplus proceeds that result from tax and mortgage foreclosure sales.
The recent rulings in Jackson v. Southfield Neighborhood Revitalization Initiative and Yono v. County of Ingham contribute to Rafaeli’s when a takings applies post-foreclosure.
In Jackson v. Southfield Neighborhood Revitalization Initiative, Oakland County foreclosed on plaintiffs’ property in located in the City of Southfield, due to delinquent tax payments in 2012 and 2014. Rather than placing the property for sale in a public auction, the City of Southfield exercised its right of first refusal and acquired the properties at a minimum bid price. The properties were then transferred to the defendant, Southfield Neighborhood Revitalization Initiative.
Plaintiffs argued that the government’s actions violated the Takings Clauses of the Michigan and United States Constitutions. Before amending the GPTA, government entities were granted the right of first refusal and were required to pay only the minimum bid to the foreclosing governmental authorities. Therefore, the issue before the Court in Jackson was whether a taking occurs when property was not offered for sale at a public auction because a governmental unit other than the state purchased the property from the foreclosing governmental entity for a minimum bid through the right of first refusal process outlined in the GPTA before amendment.
The Court held when there is no public auction, a taking occurs if the government retains property whose fair market value exceeds the minimum bid. The Court reaffirmed the principles set forth under Rafaeli and applied them specifically to where no public auction took place.
The second decision, Yono v. County of Ingham, the plaintiff failed to pay property taxes in 2014 and 2015 therefore, the municipal unit foreclosed on the property. Unlike Jackson, the property was placed on sale at public auction and when it failed to sell, the government transferred the property to defendant, County of Ingham’s Land Bank Fast Track Authority for a nominal sum. Plaintiff argued that the County’s transfer constituted as an unconstitutional taking because he retained a vested equity in the property, which he never received from the government. The Michigan Supreme Court held however, that when a foreclosed property is initially offered for sale publicly, and then subsequently transferred to another public entity for nominal sum, no taking occurs. Again, the Court relied on its analysis under Rafaeli, finding a taking arises only if the government seizes the property’s value in excess to what is owed. In Yono, due to the property first placed for sale at public auction and failing to sell there, the subsequent transfer to the land bank did not qualify as a taking as there was no remaining equity to compensate for.
Between Jackson and Yono, the Court refined Rafaeli’s application to foreclosure proceedings specifically pertaining to public auctions. Acquiring property below market value may violate the Takings Clauses when no public auction has occurred. Whereas an appropriate auction held without sale of the property, can remain within constitutional permitters. Together, these rulings illustrate an evolution in Michigan property rights protections under the Takings Clauses. If you have questions concerning foreclosure proceedings, our land use attorneys are here to help. Contact us to schedule a consultation at (313) 859-6000.
