Fifth Amendment

6th Circuit rules against county that seized homes for unpaid taxes, didn't refund the surplus value

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A county in Michigan violated the takings clause when it seized title to homes to satisfy tax debts without giving the owners compensation for their homes’ value above the amount owed, a federal appeals court has ruled.

The 6th U.S. Circuit Court of Appeals at Cincinnati ruled Oct. 13 for four property owners who challenged the practice. The author of the opinion is Judge Raymond Kethledge, said to have been on former President Donald Trump’s U.S. Supreme Court short list.

Tawanda Hall was among the four plaintiffs. Hall alleges that Oakland County, Michigan, foreclosed on her home worth about $300,000 to satisfy a $22,262 tax debt and then refused to give her the difference between the debt owed and the home’s value.

Instead, the property was transferred to the city of Southfield, Michigan, for the value of the tax debt, which transferred the property to a neighborhood revitalizing initiative for a dollar. The home later sold for $308,000.

Hall was one of four plaintiffs who alleged the county violated the Fifth Amendment’s taking clause, as applied to the states by the 14th Amendment, by failing to pay owners the surplus value of their homes after tax-debt foreclosures.

Hall is represented by the Pacific Legal Foundation, a nonprofit legal organization, which calls the process a “tax and take” scheme.

Oakland County acted under a Michigan law governing tax foreclosures that allows the state or counties to take property owners’ equity interest in their property without paying for it. After a foreclosure petition is filed in court, the property owners are given a chance to redeem their property by paying the taxes, interest, penalties and fees.

If there is no redemption, the law allowed counties to buy the property for the amount of the tax delinquency. Even after a sale at public auction, the property owner would have no right to the excess proceeds.

The law is “an aberration from some 300 years of decisions by English and American courts, which barred precisely the action that Oakland County took here,” Kethledge wrote.

“The takings clause would be a dead letter if a state could simply exclude from its definition of property any interest that the state wished to take,” Kethledge wrote.

To the contrary, he said, quoting from a Supreme Court decision, “a state may not sidestep the takings clause by disavowing traditional property interests long recognized under state law.”

Hat tip to the Volokh Conspiracy, which noted the decision.

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