Michigan County seized retiree’s home over $8 debt – now it’s fighting back in state’s highest court

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In August 2011, Uri Rafaeli bought a 1,500 square foot three-bedroom home in the Detroit suburb of Southfield, Michigan for $60,000. He turned the repairman into a rental property.

Two and a half years later – and unbeknownst to the retired engineer – Oakland County seized his property, put it up for auction, and sold the house for $24,500. All of this, after an error in calculating his property taxes, left Rafaeli’s account delinquent by just $8.41. Oakland County ended up keeping all of the $24,500 from the sale, while Rafaeli, now 83, was left without the house and the income he earned from renting it.

Rafaeli’s astonishing case, which is at the heart of a legal battle currently being heard in the Michigan Supreme Court, is an extreme example. Yet it’s not unique: More than 100,000 homeowners across the state fell victim to an aggressive property tax law that Lansing lawmakers passed two decades ago. Similar laws have been passed in more than a dozen other states.

“You have a situation where a person owed $8 and lost their house. I mean, how fair is that?

— Michigan Supreme Court Justice Richard Bernstein

Law 123 of 1999 was intended to expedite the redevelopment of rundown properties amid Michigan’s economic woes, but critics of the law say it allowed county officials to act as debt collectors and fulfill their coffers by retaining excess revenue generated from the sale of homes with outstanding payments. property taxes – no matter how paltry the debt.

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“When the government takes property to settle a debt, they have to give you back the extra money they make,” Christina Martin, a Pacific Legal Foundation attorney who is representing Rafaeli in her case against the county, told Fox News. from Oakland. “No matter what law Michigan passes, they have a constitutional obligation to repay more than they are owed.”

In a recent op-ed for The Detroit News, Rafaeli said he was “shocked and angry” by the county’s actions.

“Soon I would learn that even though I had signed on for a piece of the American dream with my investment, I was entering a bureaucratic nightmare – all thanks to Michigan’s draconian tax forfeiture laws, which I am now challenging in court. “, he wrote. .

At the heart of Martin’s argument is a clause in the Fifth Amendment, which states that the government cannot take a citizen’s private property for public use, “without just compensation.” In the Michigan Supreme Court case, Martin argued that Oakland County violated both the state and United States constitutions under the grab clause by seizing and selling Rafaeli’s property and then failing to recover any of the money from the sale.

Property seized from Uri Rafaeli by Oakland County.  (Google Maps)

Property seized from Uri Rafaeli by Oakland County. (Google Maps)

Martin added that even though the county paid Rafaeli the extra $24,491.59 he made from the sale of his property, that money still pales in comparison to what the retired engineer really lost. given that he paid $60,000 for the house, pumped out thousands of others to fix it, and lost years of rent he could have collected if the property was still in his possession.

Property values ​​in Southfield have also skyrocketed since Rafaeli bought the house in 2011 for $60,000, with estimates currently valuing the home at more than double what he paid.

“The money the county has earned is nowhere near enough for Mr. Rafaeli,” Martin said. “In Mr. Rafaeli’s case, he should get much more than that.”

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Rafaeli’s tax troubles began about a year after buying the house in Southfield when he was informed that he had underpaid his 2011 property taxes by $496. In the meantime, he continued to make the next property tax payment on time, and in January 2013 attempted to settle outstanding debt he had with Oakland County.

But due to an error he made in calculating his interest, he was unable to pay off his balance of $8.41. The bill eventually rose to $285 with penalties and interest.

The Oakland County Treasurer’s Office attempted to collect the debt several times—mailing notices both to the Southfield property and to an address it had for Rafaeli in Michigan. But Rafaeli had moved out of state by then, and his tenants in Southfield did not pass on the notices.

In February 2014, the property was finally seized by the county and was among 11,000 homes up for auction.

Rafaeli, however, was unaware that his property was no longer his property and continued to pay property taxes even after it was seized, his lawyers said. He only realized something was wrong when he stopped receiving rent payments from his tenants – who were no longer residing in the foreclosed house.

“You shouldn’t have to rely on the pity of a tax collector to have your constitutional rights protected,” Martin said. “No amount of mail should allow the government to steal your property.”

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After discovering that his property had been seized and sold, Rafaeli and his family hired local lawyers to help him recover his house or his money.

These efforts, however, proved futile as his case – in which his attorneys argued that his due process rights had been violated – was first dismissed in Oakland County Court and then in the United States Court. Michigan’s appeal ruled against him, citing the state’s civil forfeiture laws. .

That’s where Martin and the Pacific Legal Foundation stepped in to help — by petitioning the Michigan Supreme Court. The state high court granted a review of Rafaeli’s case after Martin argued that his constitutional rights had been violated under the strike clause.

The Oakland County Treasurer’s Office denied Fox News’ request for comment, but in a written court brief, county attorneys say that “by not paying taxes and repurchasing the property before the sale at auction, the taxpayer no longer possesses an interest for the government to “take.” The brief also noted that Rafaeli had been given “numerous notice provisions and opportunities” to pay his balance.

William Horton and John Bursch, the county’s attorneys, disputed Martin’s claim that the county’s actions violated the levies clause – saying in the brief that “tax collections are not the taking of private property for purposes in the constitutional sense” and that Martin’s argument is similar to those previously shot down by courts across the country.

“This is not the first time a defaulting taxpayer has brought an action to recover ‘excess’ proceeds from a tax sale,” the attorneys said.

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In court last week, Bursch argued that a ruling in favor of Rafaeli would set a precedent that could ultimately bankrupt Michigan counties by forcing local governments to compensate all homeowners in similar situations. He estimated it would cost around $2 billion.

Michigan Supreme Court Justice Richard Bernstein doesn’t seem to agree with the county attorney’s assessment of the situation.

“The interpretation you gave was very dramatic: This is going to end the schools, and the counties are going to collapse, and society is just going to implode,” Bernstein said. “You have a situation where someone owed $8 and lost their house. I mean, how fair is that?”

Rafaeli’s case will be decided before the end of July 2020.

Martin hopes a ruling in favor of Rafaeli will not only be a victory for the 83-year-old retiree, but will set a precedent in Michigan and across the country, which could lead to a US Supreme Court ruling. United on a similar case. case in the future.

In the United States, 14 other states have laws similar to Michigan’s, and five of those states – Arizona, Colorado, Illinois, Massachusetts and Nebraska – allow private investors to make money on the sale of foreclosed homes.

“Government shouldn’t give a windfall…when collecting unpaid taxes,” she said. “It’s a practice that needs to stop.”

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