New Legislation Requires Refund of Excess Proceeds from Tax Foreclosure Sales
December 22, 2020
Earlier this year, we discussed the Michigan Supreme Court’s July 17, 2020, ruling in Rafaeli, LLC v Oakland County, which held that a foreclosing municipality must return any surplus proceeds from a foreclosure sale to the title owner of the property. The Rafaeli Court held that to the extent the General Property Tax Act (“GPTA”) permitted the withholding of surplus funds, it was in violation of the Takings Clause of the Michigan Constitution.
In response to the Rafaeli decision, the legislature has passed Senate Bills 676 and 1137*, which codify the Rafaeli decision. The bills amend the GPTA to require the return of excess proceeds from a foreclosure sale and provide a procedure through which property owners can pursue their interest in the surplus of a sale. The bills are awaiting the Governor's signature.
Senate Bill 676 would change the existing rule that following a foreclosure judgment, the state can buy the foreclosed property at the greater of the minimum bid or its fair market value, while other municipal entities may purchase the property for the value of its minimum bid subject to an order of priority. The bill would allow any municipal subdivision in which the property is located, including city or county authorities, to purchase it for either the minimum bid or its fair market value. Additionally, the bill would modify the order of priority for how proceeds from a sale must be used and implements new reporting requirements on foreclosed properties over the next five years.
Senate Bill 1137 would require fees added to a delinquent property be used for the administration and sale process. Every property which is forfeited and not redeemed would be recorded with the county register of deeds, along with an explanation of rights regarding surplus proceeds after a foreclosure sale or transfer. The bill would also require that foreclosure notices contain information about legal assistance, along with the same explanation of rights included with the county record.
Bill 1137 also provides a number of limitations periods that may apply to a potential claimant based on whether their property was foreclosed before or after Rafaeli. Persons with an interest in property transferred or sold after July 17, 2020, must file a notice of intention by the July 1 immediately following the sale or transfer to assert their notice of intention to claim an interest in the excess proceeds. Property transferred or sold before July 18, 2020, however, would only be permitted to make a claim if the Michigan Supreme Court determines that its ruling in Rafaeli is retroactive (in which case the claim must be filed by the March 31, which falls at least 180 days after the qualified order). Foreclosing governments must provide notice to each claimant who filed a notice of intention by January 31. Claims to the circuit court are also subject to a limitations period specified by the bill.
The bills provide a much clearer process for claiming an interest in proceeds and create a two-year limitations period for claims of possession or recovery of foreclosed property, or claims alleging violation of the laws with respect to foreclosed property. The bills also impose an affirmative obligation on potential claimants to assert their rights.
If you have questions about the obligations or limitations created by this legislation or believe you may be impacted by the new law, please consult a Foster Swift attorney for a consultation.
*The links to the bills listed in this article will be updated to the statute page itself once Governor Whitmer signs them into law. This article can also be found under 'Publications' on our website as well as our 'Year End Resource' page under 'Litigation' header.