Hall v. Meisner (October 2022)

KETHLEDGE, Circuit Judge.  In this case the defendant Oakland County took “absolute  title” to plaintiff Tawanda Hall’s home—worth close to $300,000, on the facts alleged here—to satisfy a $22,262 tax debt, and then refused to refund any of the difference.  The other plaintiffs shared a similar fate with their homes.  Under Michigan law—and the law of virtually every state for the past 200 years—a creditor can divest a debtor of real property only after a public foreclosure sale, after which any surplus proceeds in excess of debt are refunded to the debtor. The return of that surplus compensates the debtor for her equitable interest in the property—which in common speech is called the “equity” in real property, and which English and American courts for centuries have called “equitable title.”  Yet the Michigan General Property Tax Act created an exception to this rule for just a single creditor:  namely, the State itself (or a county thereof), which alone among all creditors may take a landowner’s equitable title without paying for it, when it collects a tax debt.  In that respect the Michigan statute is not only self dealing: it is also an aberration from some 300 years of decisions by English and American courts, which barred precisely the action that Oakland County took here. The government may not decline to recognize long-established interests in property as a device to take them.  That was the effect of the Michigan Act as applied to the plaintiffs here; and we agree with the plaintiffs that, on the facts alleged here, the County took their property without just compensation.  We therefore reverse the district court’s dismissal of their claim against the County under the Takings Clause of the U.S. Constitution. 

Oakland County took title to the plaintiffs’ homes under the Michigan General Property Tax Act, which prescribed the process for tax foreclosures during the period relevant here.  As a first step, on March 1 of each year, property taxes that remained unpaid during the preceding twelve months were “returned as delinquent for collection.”  M.C.L. § 211.78a(2).  If taxes for a property remained unpaid by March 1 of the next year, the property was “forfeited to the county treasurer[.]” Id. § 211.78g(1).  Forfeiture itself did “not affect title”; rather, it merely allowed the “foreclosing governmental unit” to petition for a “judgment of foreclosure” as to the property.  Rafaeli, LLC v. Oakland County, 505 Mich. 429, 444 (2020).  Yet the Act did not require counties to seek foreclosure; rather, foreclosure for a county was “voluntary.”  M.C.L. § 211.78(6).  If a county chose not to foreclose on property, the State could do so.  M.C.L. § 211.78(3)a. If a county or the State did choose to foreclose on a forfeited property, the Act required it to file a petition to that effect in the state circuit court by June 15 of the year of the forfeiture.  Id. at 211.78h.  Meanwhile, the property owner was provided with various notices of the foreclosure process and of its right to “redeem” the property—meaning the right to remove it from that process—by payment of all the taxes, interest, penalties, and fees due for the property.   If the owner did not redeem, the Act required the state circuit court to enter a foreclosure judgment that vested “absolute title” to the property in the county (or the State, if the county chose not to foreclose), effective March 31 of the following year.  M.C.L. § 211.78k(6).  The State then had a “right of first refusal” to buy the property for “the minimum bid” (i.e., the amount of the tax delinquency) or “its fair market value.”  If the State declined, the city or town in which the property was located could purchase the property for merely the “minimum bid.”  The governmental body that ended up with the property was then free to sell it at a public auction.  No matter what the sale price, however, under the Act the property’s former owner had no right to any of the proceeds.  See Rafaeli, 505 Mich. at 448 (noting that the Act “does not Nos. 21-1700 provide for any disbursement of the surplus proceeds to the former property owner, nor does it provide former owners a right to make a claim for these surplus proceeds”).  

We accept as true the facts alleged in the plaintiffs’ complaint.  Ohio Pub. Emps. Ret. Sys. v. Fed. Home Loan Mortg. Corp., 830 F.3d 376, 382–83 (6th Cir. 2016).  In February 2018, per the Michigan Act as described above, Oakland County foreclosed on the home of Tawanda Hall to collect a tax delinquency (meaning, as used here, the outstanding taxes, interest, penalties, and fees) of $22,642; the County then conveyed the property to the City of Southfield for that same amount.  The City in turn conveyed the property for $1 to a for-profit entity, the Southfield Neighborhood Revitalization Initiative, which later sold it for $308,000.  Pursuant to that same process, in February 2016, the County foreclosed on the home of Curtis and Coretha Lee for a tax delinquency of $30,547; after the same series of conveyances, the Southfield Neighborhood Revitalization Initiative sold it for $155,000.  The County likewise foreclosed on the home of Kristina Govan for a tax delinquency of $43,350; the Initiative (after the same conveyances) still holds title to the property. In August 2020, Hall, the Lees, and Govan (“the plaintiffs”) brought suit under 42 U.S.C. § 1983 against Oakland County, the City of Southfield, the Initiative, and certain officers of 

each.  The plaintiffs asserted claims under the Takings Clause of the Fifth Amendment (as applied to the states pursuant to the Fourteenth), along with various other federal and state claims.  The district court dismissed the plaintiffs’ complaint for failure to state a claim.  This appeal followed.