From The Dead Ethics Alarms Files: Wait, WHAT? Why Was This Court Decision Even Necessary?

Uri Rafaeli owed $8.41 in unpaid property taxes. That’s eight dollars and change. The amount gradually increased to $285.81 from added interest, penalties and fees. Oakland County in Michigan  confiscated and sold his property for $24,500, thenkept all proceeds above the past due amount.  Meanwhile, Andre Ohanessian owed about $6,000 in unpaid taxes, interest, penalties and fees to the same Oakland County, and the county sold his property for $82,000. It kept all proceeds of that sale too.

Seems fair to me!

Kidding. Actually, that seems so wrong that I don’t understand how any public officials could do such a thing, or argue that it was defensible rather than obvious theft. The Michigan Supreme Court ruled last week that the takings clause in the state constitution prevents counties from selling homes for unpaid tax debts and keeping all surplus proceeds.

Because, you know, it’s wrong.

“We are thankful that the court today vindicated Uri Rafaeli and Andre Ohanessian’s property rights,” said Christina Martin, a senior attorney at Pacific Legal Foundation, which represented Rafaeli and Ohanessian free of charge. “This decision will protect people across Michigan by prohibiting county governments from stealing from struggling property owners. No one in Michigan should lose the entire equity in their home or land for falling behind on their property taxes. We will continue the fight to help other vast numbers of people whose nest eggs have been robbed by this abuse of tax foreclosure law. Today’s decision sends a message across the country that this kind of abuse should not be tolerated in the United States any longer.”

Why has it been tolerated this long? Why didn’t Uri just pay the lousy eight dollars? (There was a famous vaudeville sketch about this question. My dad told  me about it when I was a kid. “Pay the two dollars” used to be a catch phrase, but it’s now obscure. Too bad.) Why did Oakland Country spend the money to oppose a law suit that was so obviously justified? How do people capable of such conduct get into positions of power? WHAT’S GOING ON HERE???????

I really don’t understand this story at all.

In fact, 12 other states  allow similar confiscation, including Arizona, Colorado, Massachusetts, and Nebraska.The  Pacific Legal Foundation is making this its signature issue,

Good. But the whole issue should have never arisen, if state administrators had heard the faintest of buzzes (it should have been earsplitting, really) from their ethics alarms, and said, “What? We can’t do that! It’s would be horribly wrong!”

The case decision is here.

___________________________________

Pointer: ABA Journal

 

15 thoughts on “From The Dead Ethics Alarms Files: Wait, WHAT? Why Was This Court Decision Even Necessary?

  1. I recall there was a gag in the 1980s teen comedy “Better off dead’ about John Cusack not having payed the paper boy 2 dollars. The boy then chases him a few times, horror movie style, for those darned 2 dollars. Maybe that was a reference to the sketch.

    • If the town was creative enough, they could have spun this debacle into civil asset forfeiture, and said they have to take the property in, since it’s the offending item, because the owner was using it in the commission of not paying his taxes. Boom. I bet they could even gotten away with such scummy stuff. And the victims of this scam probably can’t even sue the officials that shafted them, because “qualified immunity”. Go figure, house always wins.

      • There are actual lawyers here, and I’m not one of ’em. But I believe that’s technically SOVEREIGN immunity, at least in some states. Sovereign immunity protects government departments, agencies and offices. Qualified immunity protects individuals. The pols who are pushing to get rid of qualifieds for cops sure aren’t much concerned about getting rid of sovereign in the bargain…

  2. These kinds of incidents make my blood boil. As bad as the tax system may be, the legal system is ten times worse. They’ve got the accused and incarcerated pay through the nose for things like the court system, judges, and outrageous bail. I thought most if not all of that “Legal Infrastructure” was paid for by some tax or another that every citizen pays. If it is indeed paid for by the US Taxpayers, why are they double-dipping and adding insult to injury to criminals? If you want to see a movie that takes this kind of tax abuse to its absurd and extreme conclusion, check out “House of Sand and Fog” with Jennifer Connelly and Ben Kingsly.

  3. To rid itself from ongoing debt collection, some jurisdictions have also turned to title auctions where the bidding for real estate starts at the amount of the amount owed (sometimes just small fees). These auctions have spawned a whole new predatory cottage industry in which some people are forced to rebuy their homes from the new title holder, if they are fortunate to have the means, or lose the property altogether if they don’t. We experienced this first hand. My wife’s mother, then in her early 80s, had neglected a less than $300 bill from Montgomery County, Maryland. After the county sent a third unanswered notice, the debt was sold at a title auction which a lawyer bought for a few hundred dollars. To settle with this social vulture, we had to pay over $8,000 to regain the title of her home. I am sure this practice disproportionately harms the elderly. In her case the neglect of bill paying, with the nearly disastrous results described above, was one of the first things that alerted us to what was diagnosed as dementia. I recommend everyone who has parents who are getting on in years find a way to keep an eye on how they are managing tasks like bill paying for just such a situation, and as an early warning sign.

    • I will admit to having benefited from this type of sale. We paid, at public auction held by the probate judge, the back taxes for two pieces of property. The first the owner had died and the beneficiaries of his estate came and took the trailer/mobile home and went back to their state. They had no interest in the property. The other had no house.

      For three years we paid the taxes, including on the long-gone mobile home. We weren’t allowed to live on the property. During the next three years owners were notified and had opportunity to pay back taxes and interest. That’s six years (three years of back taxes, plus three years to redeem). The first piece we obtained the title for and put our current home. The second, the week after we obtained title the owner contacted us (she had received another notification). She approached us and we “sold” it to her for the taxes and interest. About 1/8th it’s resale value.

      I do have to ask, at what point is the property to be considered abandoned? How long should the county wait?

      • Opal three years is a long time for redemption rights. In Maryland ( when I took the MD Real Estate Exam- 1989 – the owner had one year to redeem after a tax sale. Buyers at tax sales win because the redemption price includes double digit interest rates and if not redeemed and the property is effectively sold for no more than the delinquent taxes. As a result the buyer has virtually no risk and a high return.

        These laws could account for why home ownership among elderly minorities has dropped. Once the mortgage is retired the owner has to put money aside for taxes that were once part of the payment. Over time the retiree can either no longer pay the taxes, or is placed in nursing home care which requires the liquidation of the asset. This is an area ripe for reform to help lower income persons and minorities hang on to that one significant asset that builds familial wealth.

  4. This type of thing happens on purpose. The guardians of the treasury write the legislation that gives them the power. Because it affects relatively few people and those that die intestate few come forth to complain. And those who might are put off by the potential legal fees. This is the very definition of abuse of power.

    The solution is to eliminate sovereign immunity of states in these types of civil matters such that successful plaintiffs get treble damages from the state. Nothing is more wrong than a political entity effectively defrauding an owner out of the excess value of their property.

    As for the owner owing $8.45, I would like to know how that figure could escalate to $285. Why are the penalties and interest so high? Compounding penalties while adding usurious interest suggests the goal is to create the condition that the person is never able to pay and the state will wind up being able to take the property and make a profit.

  5. Here is what (generally) happens with property taxes in Texas:

    Taxes are assessed on January 1 of the current year for last year’s tax valuation. The bill for is sent in October of the current year and payable by January 31 of the next year without penalties or interest. As of February 1, if not paid, penalties and interest start accruing. If the taxes are not paid by May 1, an automatic 13% penalty is assessed; penalties increase through the remainder of the year and things get ugly.

    Delinquent taxes are collected by the tax office until the account gets referred to the collections counsel. Texas law provides for the collection of the taxes, penalties, interest, legal fees and costs, and other costs associated with collections. However, the Texas Property Tax Code provides for very strict guidelines to collect the taxes, most of which are supposed to inure the benefit of the taxpayer.

    if the delinquent taxes are not paid, the tax collection counsel must sue the property owner to collect the taxes. That is a formal lawsuit filed in the District Court (but referred to the Tax Court), where the taxpayer is sued, and the constable is to deliver proper citation to the taxpayer of the lawsuit. There are deadlines to file. If an agreement is not reached during pretrial, preparation, the case is set for trial. Most of the time, the taxpayer shows up at trial and an agreement is reached. If not, and judgment is entered in favor of the taxing jurisdictions, that judgment does not become final for 30 days. After that time, the judgment is collected on by constable foreclosure on the first Tuesday of any month after proper notice. At any time during that process, the taxpayer may work out a deal and the account will be pulled from the sale. If not, then the constable sells the property at public auction to the highest bidder for cash.

    If no one buys the property at the sale, the constable can repost it to another month or the county can buy the property back as a credit bid against the taxes owed. Very rarely is the taxpayer pursued for a deficiency judgment, though Texas law does allow it. If the property is purchased at the tax sale by the county/taxing jurisdictions, the taxing jurisdictions can conduct tax resales. However, a profit is not given to the taxing jurisdictions. The excess is deposited into the registry of the court and anyone in title to the property is given notice that money is in the court registry, whereupon the taxpayer may make application through the tax court for the distribution. If no one ever claims that money as required by law, then the funds “escheat” to the county/state. If there is an overage, or surplus, at the sale, notice is given to the taxpayer of the overage. The taxpayer has the right to seek distribution of the excess proceeds, plus accrued interest. Only if no one makes a claim on those funds is the money then distributed to the taxing jurisdictions. Along the entire course of the collections process, the taxpayer is given notice, upon notice, upon notice, in an effort to satisfy due process rights.

    Based on the foregoing, I am always suspicious when I see these cases asserting that a taxpayer has been hosed out of his/her/their property. It usually means that the taxpayer either didn’t get or didn’t pay attention to actions relating to the property. This is common where heirs are involved and taxes haven’t been paid for a number of years, and the decedents’ estates have not been resolved. By no means am I a fan of the taxing jurisdictions but there are a ton of procedural safeguards to prevent this kind of thing from happening.

    jvb

    • Michigan is famous for having pathetic safeguards against tax foreclosure. These cases are the tip of the iceberg, which will hopefully be dismantled soon.

      My state has similar safeguards to Opal’s situation. In fact, tax foreclosures are pretty rare. My town had a one time blitz last year, threatening foreclosure and tax auctions against hundreds of delinquent owners (most only a few 100 to 1000 short). Any revenues collected at auction in excess of the balance due would be held in escrow for the title holders to claim. They could also had 6 months to a year to recollect on a foreclosed property by paying back the taxes (after which, the auction winner would be refunded).

      • (Most repaid, skipping the auction. Others voluntarily sold their property and paid off the tax lien, only maybe a few vacant buildings were actually foreclosed on.)

  6. Of course, if the city ‘accidentally’ sends the tax notices to the wrong address, it can be easy to become delinquent on your taxes. Of course, you can get into the situation where the county tells you to pay back the refund they mistakenly sent to the previous owners or go to the previous owners and collect it yourself.

    Question: If the county, in writing, tells you to get $4000 from the previous owners of your house, do you have the legal authority to do so?

  7. I could talk about property issues for a long time, not as an attorney, but here’s a fun example. The new GPS mapping system has allowed section lines to be redrawn, filed and confiscated by new property owners with no input from neighbors, then the neighbor who’s had the property for years, decades even, has to go to court to get it back.

  8. We purchased a property and then found years later that the county had placed our first tax payment in escrow because they didn’t match it with the parcel number correctly. Then they never notified us. The only way we found out was that when the notice came out for the impending tax sales, our parcel number was listed. We had to pay all of the interest and penalties even though they had placed our original payment in escrow. I can easily see how some locations can take a few dollars mistake on a tax payment and escalate it without notifying the taxpayer.

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