In 2021, Manistee County, Michigan, took title to Chelsea Koetter’s home to pay off a small debt owed on her 2018 property taxes. It was April Fool’s Day. The “trap” never appeared.
Her situation only became more ridiculous. The government seized the home she shared with her two sons and auctioned it off four months later for $106,500. The profits are then retained.
All told, Koetter owes the government $3,863.40, which includes her original taxes plus penalties, interest and fees. She did not deny that she was obliged to pay the fee. The question is whether it was legal for the county to pocket the remaining $102,636 after selling her home, a practice known as home equity theft.
“I’ve had people tell me they’re suicidal because they’ve lost everything they’ve worked for,” Christina M. Martin, a senior attorney at the Pacific Legal Foundation who has prosecuted multiple housing cases, told me last year. Net Worth filed the lawsuit and also represents Cotter. “Losing your home is hard enough, but when you lose your life savings, it’s just devastating. It’s completely shocking. It destroys people often.”
The program is widely considered illegal under both the state of Michigan and the U.S. Constitution. You don’t have to look back for your receipt. 2020, michigan supreme court Judgment in favor of the case Uri Rafaeli’s house was confiscated by the government, which then sold it and kept all the proceeds. Raffaelli’s original tax was $8.41.
The U.S. Supreme Court weighed in on the issue last year, unanimous verdict Hennepin County, Minnesota violated the Constitution when it seized an elderly woman’s home for property tax debt, then sold it and again retained the profits. “A taxpayer who hands over a $40,000 home to the state in order to repay $15,000 in taxes contributes far more to the public treasury than the amount she is owed,” Chief Justice John Roberts wrote. Referring to plaintiff Geraldine Tyler, who lost $2,300. After penalties, interest and fees, the total ended up being $15,000. The local government then kept the remaining $25,000 she was owed.
But rather than abide by a straightforward interpretation of the law, Michigan tried to dance around it in creative ways, devising a Byzantine law. Debt Collection Ordinance If homeowners want to get their equity back, they are left in a futile situation.
“After a foreclosure, and before any property is sold or the remaining amount, if any, is known, the owner must properly serve a notarized and completed claim form to the foreclosing governmental unit within 92 days ,” Koetter wrote in the complaint filed. The lawsuit was filed this week in the Michigan Supreme Court. “Approximately one year after the foreclosure, and several months after the sale of the property, the owner must file a separate motion in the foreclosure action seeking distribution of any remaining proceeds.” During the process Getting it wrong at any point can result in a failed claim, causing the government to take away someone’s equity.
Cotter is now very familiar with the losses that can occur due to process technicalities and oversights. After falling behind on her taxes, she was able to pay her 2019 and 2020 bills with help from her family. She claims her 2018 taxes were not fully paid due to a government employee’s mistake. At the local office, her father, who was helping her pay off her debt, reportedly asked the person assisting him “to verify that all taxes were paid, and they reviewed the records and confirmed that I was paying all taxes due.” The employee allegedly failed to repay part of the debt.
That accident set in motion a chain of events that ultimately resulted in Kurt losing his home. After the garnishment, she missed the first deadline because she was unfamiliar with the complicated procedures for claiming the proceeds of the sale. Her protests over the funds were subsequently dismissed by the county and the Michigan Court of Appeals.
At the heart of these cases is the Fifth Amendment’s Takings Clause, which promises “just compensation” to people whose property has been seized by the government. Michigan’s approach essentially makes the argument that if property owners don’t formally notify bureaucrats in very specific ways that they want their constitutional rights to be respected, the government can circumvent that commitment. It causes people to unknowingly give up what should be basic security.
This is an argument the state Supreme Court should reject. Local governments and their citizens will continue to debate how high property taxes should be and what financial penalties property owners should bear for falling behind. What should be undisputed at this point, however, is that the government cannot meet the bill and then devise clever ways to legalize theft.
