Property taxes are an important source of revenue for municipalities in the State of Michigan. Those tax dollars funds school districts, police departments, fire and rescue services and other local services. When these property taxes go unpaid, the countdown starts towards a future date where the property owner runs the risk of losing the property. Over twenty years ago, the Michigan Legislature passed Public Act 123 of 1999 which shortened the time period for taxpayers to pay the delinquent assessments from five years to three years. Property owners with unpaid taxes in the present year will be placed in forfeiture status on March 1 of the following year, then foreclosure will occur on March 31 of the year after that.
Michigan has two separate property taxes. First, there are the Summer taxes that are due on July 1 of each year and cover the tax period of July 1 of the current year to June 30 of the next year. Usually, these taxes can be paid from July 1 to September 14 without penalty (some municipalities may have different due dates), but if they are still unpaid after September 14 then interest and penalties are charged and the balance due becomes a lien against the property. Second, there are the Winter taxes that are due on December 1 of each year and cover the tax period of December 1 of the current year to November 30 of the next year. Usually, these taxes can be paid from December 1 to February 14 without penalty (some municipalities may have different due dates), but if they are still unpaid after February 14 then interest and penalties are charged and the balance due becomes a lien against the property. Taxpayers are actually “paying their taxes ahead”, so that payment on July 1 or December 1 is covering the period going into the next calendar year.
Real estate taxes “are assessed and, in the first instance, collected by the city, township, or village treasurer.” MCL 211.44 and 211.45. When property taxes are not satisfied and become delinquent, the collection efforts are turned over to the “foreclosing governmental unit.” MCL 211.55. Generally, the county where the real estate is located serves as the “foreclosing governmental unit” (75 of Michigan’s 83 counties do so), but otherwise it may be the State of Michigan. MCL 211.78(8)(a). On March 1 of each tax year, taxes due in the immediate preceding tax year that remain unpaid are “returned” to the county treasurer as “delinquent”.
In the FIRST YEAR beginning March 1 following delinquency, notice of the tax deficiency must be afforded to property owners throughout the next 12 months. A 4% administration fee and interest computed at a non-compounded rate of 1% per month are also added to the delinquent parcel beginning March 1. The statutory notice requirements in the first year are as follows:
- June 1 – County treasurer sends first notice by first-class mail to taxpayer or owner. MCL 211.78b.
- September 1 – County treasurer sends second notice by first-class mail to taxpayer or owner. MCL 211.78c.
- October 1 – County treasurer adds a $15.00 fee to delinquent taxes. MCL 211.78d.
- November 1 – County treasurer prepares a list of property subject to forfeiture for delinquent taxes. MCL 211.78e(1).
- December 1 – County treasurer updates taxpayer address based on records at local governmental unit. MCL 211.78e(2).
- February 1 – The county treasurer sends a notice by certified mail to the taxpayer and owner. The county treasurer also sends a notice by first-class mail to the occupant of the property. The county treasurer may, but is not required to, publish notice in the local newspaper. MCL 211.78f.
In the SECOND YEAR beginning March 1 following the 12-month notice period, the properties with delinquent taxes are “forfeited” to the county treasurer for the amount of the delinquency (plus interest, penalties and fees). MCL 211.78g(1). The “forfeiture, as defined by the General Property Tax Act (“GPTA”), does not affect title but means that the foreclosing governmental unit may seek a judgment of foreclosure in the circuit court if the property is not redeemed. MCL 211.78(8)(b). During this period, the taxpayer still has a right to possession of the property. To cure the forfeiture, the taxpayer may “redeem” the property at any time prior to a judgment of foreclosure by making payment to the county treasurer for ALL of the following:
- “The total amount of unpaid delinquent taxes, interest, penalties and fees for which the property was forfeited”, reduced by any amounts pursuant to a payment reduction program. MCL 211.78g(3)(a).
- An additional interest computed at a non-compounded rate of 0.5% per month from March 1 preceding foreclosure. MCL 211.78g(3)(b).
- All recording fees and all fees for service of process or notice. MCL 211.78g(3)(d).
- An additional $175.00 title fee added to the parcel by the county treasurer. MCL 211.78g(1).
If the property is not redeemed, the following activities take place in the second year:
- April 15 – Deadline by which county treasurer records a certificate of forfeiture at the register of deeds. MCL 211.78g(2).
- May 1 – Foreclosing government unit initiates a title search to identify the owners or anyone with interest in the property entitled to notice of the show cause hearing and the foreclosure hearing. MCL 211.78i(1). The foreclosing government unit must make a personal visit to the property to ascertain if it is occupied, and (if so occupied) attempt to provide notice of the show cause hearing and the foreclosure hearing. MCL 211.78i(3).
- June 15 – Deadline for the foreclosing government unit to file petition for foreclosure with a listing of forfeited property with the county clerk. The county clerk immediately sets a court date for the hearing on the petition for foreclosure. MCL 211.78h(1). This court date must take place between January 30 and February 28 in the second year. MCL 211.78h(5). The county clerk also schedules the show cause hearing (scheduled not later than 7 days prior to the judicial foreclosure hearing) where persons with interest in the real estate can appear to show cause why absolute title to the forfeited property should not vest with the foreclosing government unit. MCL 211.78j(1). Interest persons are entitled to notice of both proceedings no less than 30 days before the show cause hearing. MCL 211.78i(2).
- February 28 – Last day that the judicial foreclosure hearing can be held.
A person claiming an interest in a parcel of property can appear at the show cause hearing or the judicial foreclosure hearing and contest the validity or correctness of the forfeited unpaid delinquent taxes, interest, penalties and fees for 1 or more of the following reasons:
- “No law authorizes the tax.” MCL 211.78k(2)(a).
- “The person appointed to decide whether a tax will be levied under a law of this state acted without jurisdiction, or did not impose the tax in question.” MCL 211.78k(2)(b).
- “The property was exempt from the tax in question, or the tax was not legally levied.” MCL 211.78k(2)(c).
- “The tax has been paid within the time limited by law for payment or redemption.” MCL 211.78k(2)(d).
- “The tax was assessed fraudulently.” MCL 211.78k(2)(e).
- “The description of the property used in the assessment was so indefinite or erroneous that the forfeiture was void.” MCL 211.78k(2)(f).
To contest the petition, the person with interest of the property must file and serve a written response on all parties before the hearing. By March 30 of the THIRD YEAR, the circuit court must enter a judgment of foreclosure in uncontested cases. The effective date of the judgment in uncontested cases is March 31 (this is also the last possible date that the foreclosed property can be redeemed by the property owner of taxpayer). In a contested proceeding, if the circuit court finds in favor of the foreclosing government unit, then the right to redeem the property is extinguished 10 days after judgment is entered and the judgment is effective 21 days after entry. MCL 211.78k(5). Once effective, any liens and interests other than future special assessments installments, liens filed by government agencies, visible or recorded easements and private deed restrictions are extinguished.
After the judgment of foreclosure is entered, the statutory deadlines in the THIRD YEAR are as follows:
- First Tuesday in July – The state may exercise the first right of first refusal “to purchase property at the greater of the minimum bid or its fair market value by paying that amount to the foreclosing governmental unit if the foreclosing governmental unit is not this state.” If the state does not elect to purchase the property, then “a city, village, or township may purchase for a public purpose any property located within that city, village, or township set forth in the judgment and subject to sale… by payment to the foreclosing governmental unit of the minimum bid.” MCL 211.78m(1).
- Third Tuesday in July – Earliest date that the foreclosed property can be foreclosed at action, with notice published in the newspaper at least 30 days prior. MCL 211.78m(2). There must be a minimum of two auctions held, with the second one occurring no sooner than 28 days after the first one. MCL 211.78m(5). Prior to the second auction, the city, village or township where the property is located has a second right of refusal to buy the property for the minimum bid if it was not sold at the first auction. MCL 211.78m(3). If the city, village or township buys the property, then they receive it within 30 days. MCL 211.78m(4).
- First Tuesday in November – Deadline for the foreclosure sale to be completed, with the property to be sold to the highest bid above the minimum price. MCL 211.78m(2).
- December 1 – A list of all property not sold by the foreclosing governmental unit is transferred to the clerk of the city, village or township where it is located. MCL 211.78m(6).
- December 30 – Deadline for city, township or village to reject transfer of property to them. If the foreclosing government unit is not the state, then title transfers to the county. If the foreclosing government unit is the state, then title transfers to the Land Bank Fast Track Authority. MCL 211.78m(6).
After the property is sold, the foreclosing government unit deposits the sale proceeds into an account designated as the “delinquent tax property sales proceeds for the year”. MCL 211.78m(8). The GPTA directs that those proceeds are then distributed in a specific order of priority. First, the delinquent taxes, interest and fees on the property are satisfied. MCL 211.78m(8)(a). Second, the costs of the foreclosure proceedings and sale are paid. MCL 211.78m(b) through (f). For the surplus proceeds, the GPTA directs how those are paid depending on who the foreclosing government unit was. If it was the state, then the surplus proceeds are transferred to the state’s land reutilization fund. MCL 211.78m(8)(g). If it was the county, then the surplus proceeded are transferred to the county’s general fund by the board of commissioners for use in any way that they see fit. MCL 211.78m(8)(h). However, the Michigan Supreme Court recently ruled in Rafaeli, LLC v Oakland County, __ Mich __ ; __ NW2d __ (2020)(Docket No. 156849) that the government’s retention of surplus proceeds from the tax foreclosure sale is unconstitutional and must be retuned to the property owner or taxpayer. This decision will likely lead to litigation by taxpayers to recover these surplus fees and budget constraints by county governments who depended on these revenues.
A person who falls into delinquency with their property taxes should not wait to get help. There are programs available that may be able to help taxpayer get out of trouble. For example, Step Forward Michigan is a state program that provides interest free forgivable loans to eligible applicants. Several community action agencies and non-profit agencies are also available to provide counseling and possible financial assistance. Many county treasurers are also willing to offer hardship extensions or payment plans to help people stay in their home. Veterans who are 100% disabled under state law may be able to secure a property tax exemption on current and future taxes. In the event you believe you are being mistreated by the taxing authority or the foreclosing government unit, you can always seek the advice of a lawyer to understand your rights.
If you or a loved one has any questions about Michigan property taxes or need legal representation, then do not hesitate to contact the experienced attorneys at Kershaw, Vititoe & Jedinak PLC for assistance today.