The trial court wrongly granted summary disposition to the defendants, Ingham County and its treasurer, on the plaintiff’s claim that an unconstitutional taking of his property occurred, the Michigan Court of Appeals has ruled.

The plaintiff in Yono v County of Ingham, et al. (Docket No. 362536) argued the Ingham County Circuit Court improperly granted summary disposition for the defendants because his property was unconstitutionally taken and transferred to the Land Bank for $1, which was “far less” than what the plaintiff owed in delinquent taxes. The plaintiff claimed he did not receive just compensation and the defendants violated the Takings Clause of the Michigan Constitution (Const 1963, art 10, § 2).

“We agree,” the Court of Appeals said. “[We] conclude that Rafaeli [v Oakland County, 505 Mich 429 (2020)] applies and that plaintiff has successfully proven that defendants violated the Michigan Takings Clause in this matter. We therefore reverse the order granting summary disposition to defendants. As was the case in [United States v] Lawton [110 US 146 (1884)], we direct the trial court to calculate the ‘surplus’ owed on the property by reference to the value of the property, less what plaintiff owed on it when the foreclosure occurred.”

Judge Elizabeth L. Gleicher and Judge Michelle M. Rick signed the unpublished opinion. Judge Kathleen Jansen concurred, saying she wrote separately “to address several issues of concern that were not litigated or appealed in this matter that I anticipate will need to be addressed in future cases of a similar nature.”

The defendants in Yono recently appealed the Court of Appeals decision to the Michigan Supreme Court (Docket No. 166791). The application is currently pending.

Background

In 2006, the plaintiff bought a commercial property in Lansing, Michigan under a land contract, which was recorded with the register of deeds. A certificate of forfeiture of real property was recorded in 2016 with the register of deeds, indicating the plaintiff had not paid $1,891 in property taxes in 2014. In 2017, a certificate of forfeiture was recorded for nonpayment of property taxes in 2015 for $15,684.41. The property was worth $378,400.

Pursuant to the Michigan General Property Tax Act (GPTA), MCL 211.1 et seq., the defendants foreclosed on the plaintiff’s property. The defendant held an auction to sell the property but the property was not purchased. Subsequently, the defendant executed a quitclaim deed transferring the property for $1 to the Land Bank, which “may have since sold the property for redevelopment.”

The plaintiff filed this action against the defendants in Ingham County Circuit Court, claiming they unconstitutionally took his property without just compensation in violation of the Takings Clause. He claimed that he had a “vested property interest equal to the fair market value minus the amount of property taxes overdue and costs attributable to the tax foreclosure.”

The Takings Clause says, in relevant part: “Private property shall not be taken for public use without just compensation therefore being first made or secured in a manner prescribed by law. If private property consisting of an individual’s principal residence is taken for public use, the amount of compensation made and determined for that taking shall not be less than 125% of that property’s fair market value, in addition to any other reimbursement allowed by law. … ‘Public use’ does not include the taking of private property for transfer to a private entity for the purpose of economic development or enhancement of tax revenues. Private property otherwise may be taken for reasons of public use as that term is understood on the effective date of the amendment to this constitution that added this paragraph.”

The plaintiff also asserted a bailment claim, alleging the defendants were in possession of certain items of his personal property that remained on the land after the foreclosure.

The defendants filed a motion for summary disposition, arguing they were entitled to summary disposition pursuant to Rafaeli, where the Michigan Supreme Court “held that a foreclosed taxpayer is entitled to compensation for the amount of any surplus proceeds actually realized through a tax foreclosure sale.” According to the defendants, the transfer of the property from the county to the Land Bank “did not yield any surplus proceeds” and the plaintiff “had no right to recovery.” Regarding the plaintiff’s bailment claim, the defendants maintained they were entitled to governmental immunity and, even if they could be held liable under a bailment theory, they “never had possession of plaintiff’s personal property.”

The plaintiff responded by emphasizing the facts of the case did not fit squarely under Rafaeli because there was no sale and, as a result, no surplus proceeds. He continued to maintain that his property was taken without just compensation and alleged the defendants were not entitled to governmental immunity because they were not performing a governmental function when they seized his property without just compensation.

The trial court granted the defendants’ motion for summary disposition. The plaintiff appealed.

Unconstitutional Taking

The Court of Appeals agreed with the plaintiff that summary disposition was improper because an unconstitutional taking occurred.

In its analysis, the Court of Appeals explained that the GPTA provides for the recovery of unpaid real property taxes, penalties, interest and fees through the foreclosure and sale of the property for which there is a tax delinquency. “After being given notice of a delinquency, if a property owner fails to timely redeem the property, fee simple title is vested in the county treasurer. MCL 211.78 et seq. After … foreclosure, the state or municipality may claim the property. MCL 211.78m(1). If the state or municipality fails to exercise their right of first refusal, the property is put up for sale at public auction. MCL 211.78m(1) and (2). However, if the property is not sold at auction and the foreclosing unit (other than the state) retains possession, the foreclosing unit may ‘[t]ransfer the property to a land bank fast track authority created under the land bank fast track act,’ MCL 124.751 et seq. MCL 211.78m(7)(a).”

Here, there was no dispute that the plaintiff was delinquent in paying property taxes in 2014 and 2015, the Court of Appeals observed. “Thus, the certificates of forfeiture of real property were recorded with the register of deeds, and title was vested in the treasurer. … The property was not sold at public auction, so the county deeded the property to the Land Bank for $1, per the procedure described under MCL 211.78m(7)(a).”

The plaintiff argued the defendants’ actions violated the Takings Clause and that Rafaeli “does not go far enough, because unlike the property at issue in Rafaeli, his property was not successfully sold at auction” and “there were no surplus proceeds” for him to receive, the Court of Appeals observed. “We agree that the Rafaeli Court was not dealing with a situation where property failed to sell at auction and was instead given over to a land bank. Even so, Rafaeli informs much of our thinking about foreclosure cases, even if the facts of that case are not identical to those we are dealing with in the instant matter.”

Looking to Rafaeli, the Court of Appeals explained the plaintiffs in that case owed unpaid property taxes and that Oakland County and its treasurer foreclosed for the delinquencies, sold the properties for an amount greater than the taxes owed and retained the proceeds. “The issue before our Supreme Court was whether the defendants committed an unconstitutional taking by retaining surplus proceeds from the sale of the properties that exceeded the amount the plaintiffs owed in unpaid delinquent taxes, interest, penalties, and fees under the GPTA. The GPTA did not provide any recourse for the plaintiffs, as it contains no procedures allowing property owners to recover the surplus proceeds generated by a foreclosure sale. … Consequently, the Rafaeli Court decided the issue under the Takings Clause of the Michigan Constitution, and held that the defendants’ ‘retention of those surplus proceeds [was] an unconstitutional taking without just compensation under’ Const 1963, art 10, § 2.”

Meanwhile, the defendants in the present case argued there could be no unlawful taking because “no surplus proceeds were generated from the foreclosure of plaintiff’s property,” the Court of Appeals said. “They note that under Rafaeli, ‘a former property owner only has a right to collect the surplus proceeds from the tax-foreclosure sale; that is, a former property owner has a compensable takings claim if and only if the tax-foreclosure sale produces a surplus.’ … As such, defendants argue, there could not have been an unlawful taking here.”

However, the defendants “ignore the key fact that, unlike in Rafaeli, where a tax foreclosure sale occurred, no such sale occurred in this case,” the Court of Appeals said. “Thus, on that point, Rafaeli is distinguishable from the instant matter. … Even so, this Court recently opined that Rafaeli did not preclude an unjust-takings claim under the Michigan Takings Clause, where the plaintiffs’ properties were foreclosed upon and transferred over to a land bank after being purchased by the city of Southfield from the Oakland County Treasurer for the minimum bid, meaning that no surplus equity was generated from the sale.”

Further, although the Rafaeli Court said that “a former property owner has a compensable takings claim if and only if the tax-foreclosure sale produces a surplus[,]”… the 6th U.S. Circuit Court of Appeals in Hall v Meisner, 51 F 4th 185 (6th Cir 2022), found this was “dictum,” the Court of Appeals said, referencing Jackson v Southfield Neighborhood Revitalization Initiative, ___ Mich App ___ (2023).

“We agree with this analysis completely,” the Court of Appeals wrote. “As this Court aptly pointed out in Jackson, the Rafaeli Court was not dealing with a scenario like that which has been presented here, and thus had no cause to consider what might happen if property was not sold in a foreclosure sale and was instead given to a land bank. Even though no sale occurred, the fact that there were no surplus proceeds does not at all imply that there was no taking, or that the property lacked any inherent value. Plaintiff here still lost his equitable interest in the property, which certainly had some value, as every parcel of property does, one way or another. This is clearly the sort of taking that the Michigan Takings Clause is designed to prevent, and even though there was no real sale or purchase of the property as a result of the foreclosure, defendants necessarily got more than what they were owed by virtue of retaining the property without paying anything to plaintiff.”

Therefore, “we agree with the Jackson and Hall Courts that Rafaeli’s pronouncement that former property owners only have a compensable claim if a surplus exists was obiter dicta, and is not binding on this Court,” the Court of Appeals said. “This conclusion also tracks with the Sixth Circuit’s overall holding in Hall. … Additionally, the United States Supreme Court essentially adopted the reasoning set forth in Hall when it issued Tyler v Hennepin Co, Minn, 598 US 631 … (2023). There, the [U.S.] Supreme Court stated that unjust taking occurs in the federal context if the government takes a person’s property and keeps it instead of holding a foreclosure sale. … We recognize that Hall is not binding on this Court, but agree with the Jackson Court that its reasoning is persuasive. … We also find Lawton and Tyler instructive in determining the appropriate remedy here.”

The Rafaeli Court “essentially acknowledged the applicability of the Lawton line of cases, which includes Tyler,” the Court of Appeals explained. “Accordingly, … we conclude that … plaintiff has successfully proven that defendants violated the Michigan Takings Clause in this matter.”

Regarding the plaintiff’s bailment claim, the Court of Appeals said there was “no evidence in the record” that the Land Bank was in possession of the plaintiff’s personal property. … Therefore, plaintiff has not presented a genuine issue of material fact as to whether defendants possessed his personal property, and his bailment claim fails as a matter of law.”

Accordingly, the trial court “erred by granting defendants’ motion for summary disposition as to plaintiff’s Takings Clause claim, but did not err by granting summary disposition as to defendant’s bailment claim,” the Court of Appeals concluded.