Updates on Rafaeli and Reclaiming Excess Funds from Property Tax Foreclosure Sales

In July of 2020, the Michigan Supreme Court issued a landmark decision in Rafaeli, LLC v Oakland County.

The Rafaeli matter concerned a property tax foreclosure sale due to unpaid property taxes by Rafaeli. Following the sale, Oakland County retained the excess funds beyond the property taxes owed by  Rafaeli. This was held to be an unconstitutional taking pursuant to the Michigan Constitution.

Following the Rafaeli decision, there have been multiple lawsuits filed by individuals seeking to reclaim their hard fought equity taken by the government following these sales. In addition to lawsuits filed, the Michigan Legislature enacted legislation that provided the framework for how individuals can reclaim funds improperly withheld by the government.

MCL 211.78t states that individuals who had their home foreclosed upon due to unpaid taxes on or after July 17, 2020 must file a form with the Circuit Court in the county for which their home was foreclosed on or before the upcoming July. Adding a layer of confusion, the State of Michigan Treasury Department issued the form (SCAO Form 5743) which states that the form can only be used for property tax foreclosure sales that occurred during or after 2021.

While the legislature paved a path for individuals whose homes were sold after July 2020, the legislature left many others who have had their equity taken by the government without redress.

Rather, MCL 211.78t states that individuals who had their home sold prior to July 17, 2020, and their remaining equity wrongfully withheld, must wait for the Michigan Supreme Court to determine if the Rafaeli standard should apply retroactively.

While the Michigan Supreme Court has not yet weighed in, the Oakland County Circuit Court has.

The Rafaeli matter was remanded to the Circuit Court from the Supreme Court solely as to the count of Violation of Right to Just Compensation/Inverse Condemnation. The Supreme Court held that “the General Property Tax Act, which does not provide for the return of proceeds from the tax foreclosure sales in excess of the tax and other fees, is an unconstitutional taking under the Michigan Constitution.”

Following remand, Defendant Oakland County filed a Motion for Summary Disposition with the Circuit Court. In ruling on the motion, the Circuit Court granted the motion stating, in part, “the Supreme Court’s Opinion should be applied prospectively [not retroactively] as of July 17, 2020 because it overrules settled precedent and decides an issue of first impression whose resolution was unforeseen.” The Court further opined that the Defendant, and other county treasurers, have relied upon the law for twenty-one years prior to this decision. The Court stated that this decision was in the “interest of justice.” In short, the Court ruled that justice would best be served by allowing Counties and their treasurers to retain this illegally taken funds because “that’s how it was.” Plaintiff Rafaeli has already appealed the decision and filed their initial brief.

It remains unknown how the Michigan Supreme Court will rule. It does appear that the Rafaeli case is on a fast track back to the Supreme Court to obtain the opinion sought by individuals and the legislature alike. To note, there are a number of matters that have been filed in state and federal court that have applied the Rafaeli standard retroactively.

If you had your property foreclosed upon due to unpaid taxes, and would like to better understand your rights as to receiving excess funds held by the government, contact Grewal Law PLLC.