Michigan’s foreclosure law: Efficient or unfair?

VAN BUREN COUNTY, Mich. -- When their foreclosed properties were auctioned off and the profits went to the county and not their pockets, three former Van Buren County landowners started asking questions.

“If we only owed $16,000 and the church was sold for over $206,000 – something like that – I asked her, ‘Where’s the rest of the money?’” Reggie Hill said. “She said, ‘It belongs to the county.’”

That was part of a phone conversation Deacon Reginald ‘Reggie’ Hill had with the Van Buren County Treasurer after finding out the youth camp his church had on a piece of southwest Michigan land had been sold in a foreclosure auction.

“If it’s not fair, then it’s not fair,” Hill said. “I don’t care what they say.”

Wayside Church has been based in Chicago since the 1970s.

But it expanded by purchasing a rural plot of Van Buren County land a few decades ago to start a youth camp for inner city kids.

“Like the Boy Scouts,” Hill said, describing the camp. “There was some religious teachings and crafts. You know, sort of like a summer camp for young people.”

But the church started to fall on hard times in the early 2000s.

Its congregation of hundreds began to grow old and pass away. And finding new members was challenging.

“Everything just started going down,” Hill said.

The church failed to pay its 2011 property taxes for the youth camp.

Hill said church leadership was a bit chaotic at that point, so he didn’t find out about the unpaid taxes until it was too late.

The land was sold in a foreclosure auction in 2014 for $206,000.

But even though Wayside owed only $16,750 in penalties, taxes and fees, Van Buren County got to keep the $189,000 in profit.

The Michigan General Property Tax Act

“The vast majority of states recognize that what’s happening in Michigan is not right,” said Christina Martin.

Martin is an attorney for the Pacific Legal Foundation, a conservative public interest law firm that is representing Wayside, along with two other former Van Buren County property owners, for free.

“The government can take what belongs to them,” Martin said. “In other words, the taxes, the penalties, the interest, the fee, but then they can’t gobble up all of the surplus just because you’re late on paying your taxes.”

She said Michigan is one of a handful of states with foreclosure laws like this.

The Pacific Legal Foundation filed a petition in the U.S. Supreme Court in July asking for the Michigan General Property Tax Act to be ruled unconstitutional.

A federal court had dismissed the case earlier this year, but Martin and her team decided to try the Supreme Court because she said her clients had their Fifth Amendment rights violated by having their private property ‘taken for public use, without just compensation.’

“If it’s you that’s getting foreclosed on, of course it’s not fair,” said Berrien County Treasurer Bret Witkowski. “If you’re living next to the house that’s getting demoed because it’s been abandoned for a number of years because the taxes aren’t paid, then I think people are going to think it’s fair. So it’s really, to me, depends on who you’re going to talk to.”

Witkowski said the foreclosure law – which has been around since 1999 – makes sense when you read the fine print.

Each county in Michigan is required to have a foreclosure fund as part of the law.

The money that goes into that fund is whatever profit is made when a foreclosed property is sold at auction.

If a property has $3,000 of unpaid taxes, the starting bid at auction for it will be $3,000.

But Witkowski said most properties usually sell for higher.

So let’s say the property sells for $10,000.

That $7,000 profit goes into the foreclosure fund, which each county treasurer then decides how to spend each year.

“If we were not allowed to keep the excess above the minimum bid, there would be no demolitions in Berrien County,” Witkowski said. “We would sell everything as is. The local units would have to handle demolitions. And they do not have the money to pay for demolitions.”

This is also true for Cass and Van Buren counties.

All three county treasurers said their foreclosure funds are used primarily to tend to foreclosed properties.

This entails knocking down older foreclosed homes, mowing the lawns of those properties, and working to inform people who are behind on their taxes that their home or business could be next.

Witkowski said in Berrien County alone, $1.7 million was spent demolishing foreclosed properties in 2016.

About $300,000 was spent informing people, and their banks, about impending foreclosures.

And roughly $50,000 was spent cutting the grass until those properties are sold.

Each treasurer said they dream of having no foreclosures in their county.

But because they always do, they prefer the foreclosure fund pay for it, instead of law-abiding taxpayers.

“This is really a self-funded operation, and so, that’s how we want to keep it,” Witkowski said.

Takings Clause

But Martin said that self-funded operation is still unconstitutional.

She said it’s singling out a few to take on what should be a community effort.

“The Supreme Court has said over and over again that the Takings Clause in the U.S. Constitution, that’s the Fifth Amendment, was designed to keep the government from shifting a burden that should be borne by everybody onto a few people,” Martin said.

She added: “And what [Van Buren] County’s basically doing is saying we’re going to shift the public financial burden onto those people who own valuable property and fall behind on their taxes. And then they have to pay for the foreclosure on all these other properties. That’s exactly what the Takings Clause was designed to stop from happening.”

Today, a historic home in a Chicago suburb is all Wayside Church has left.

It’s in desperate need of repairs and is not suitable for services right now.

Reggie Hill said the hope is Wayside can one day rebuild and reopen, but the future looks bleak without that $189,000 in profit the church’s youth camp sold for.

“That was the bulk of what the church could’ve resurrected itself on, if we could’ve gotten the money back,” Hill said. “But it didn’t happen.”

Van Buren County has until mid-September to file a response to the petition the Pacific Legal Foundation sent to the Supreme Court.

Martin said we should know by late fall if the highest court in the land will take on this case.

In the meantime, the Berrien, Cass, and Van Buren county treasurers said this foreclosure law is the most efficient and cost-effective process they’ve ever used to hand foreclosures.

Each treasurer said they offer payment plan options if you’re behind on your taxes, but want to avoid losing your property.