May 19, 2022

Volume XII, Number 139

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Michigan Court of Appeals Upholds Taxpayer Recovery of Excess Tax Foreclosure Proceeds, Bars Multi-County Class Actions

  • The Michigan Court of Appeals rejected an effort to allow class action recovery of excess proceeds from the sale of tax foreclosed properties.

  • The Court ruled that the Michigan Supreme Court's 2020 decision in Rafaeli v Oakland County applied retroactively and that the subsequent legislative fix from December 2020 applied prospectively only. Under the new law, an owner must file a notice with the county by the July 1 immediately following the effective date of the foreclosure.

  • The decision is most significant for cases where the taxpayer whose property was foreclosed had filed suit before the new legislation, and it may impact the right to interest on claims that complied with the requirements of the new legislation.

A new Michigan Court of Appeals ruling could impact the ability of taxpayers to recover excess proceeds from the sale of tax-foreclosed properties.

In Proctor v Saginaw County, a consolidated appeal of five putative class actions against a large number of counties, the Court of Appeals rejected an effort to allow the recovery of such proceeds as a class action. The Court also held that the Michigan Supreme Court's 2020 decision in Rafaeli v Oakland County (see our previous alert on that ruling) applied retroactively and that the subsequent legislative fix, 2020 PA 256, MCL 211.78t(1), which created various procedural requirements for recovering excess proceeds, applied prospectively only. Finally, the Court also held that qualified immunity protected the government officials involved in the foreclosure process while holding that under Rafaeli, taxpayers are entitled to recover both the excess proceeds and interest on those proceeds.

The Proctor Court affirmed the rejection of proposed class actions for owners in every county in the state. The Court held that a named plaintiff cannot sue a party in a class action whom that plaintiff could not have sued individually. The Court further held that, since none of the trial courts had granted class certification before the effective date of the legislative fix, any unnamed plaintiffs are subject to the procedural mandates of that legislation.

Proctor deals with claimants whose properties were foreclosed and who had filed suit before the December 2020 legislation. As it is too late for anyone else to file new claims for those pre-December 2020 foreclosure sales, the decision is most significant to taxpayers who already filed suit when that legislation was enacted.

This case did not address the mechanics of the new law. An owner must file a notice with the county by July 1 immediately following the effective date of the foreclosure. The county then has to send a notice by January 31 to those claimants, who then must file a motion in circuit court between February 1 and May 15. The notice deadline passed on July 1, 2021, for 2021 foreclosure judgments (for tax year 2018) whose effective date was March 31, 2021. A new round of judgments and related deadlines are upcoming in March 2022 for 2019 taxes. The decision may impact the right to interest on claims that complied with the requirements of the new legislation.

© 2022 Miller, Canfield, Paddock and Stone PLC National Law Review, Volume XII, Number 10
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About this Author

Gregory A. Nowak Attorney Tax Lawyer Miller Canfield
Senior Counsel

Gregory Nowak is one of Michigan's leading experts on state and local tax issues. With more than 20 years experience, he focuses his practice on both structural tax planning and state tax controversy matters. 

Throughout his career, he has represented many major companies on multistate tax matters including clients in the manufacturing, retail, and transportation industries. Greg has litigated and negotiated issues involving all of Michigan's major taxes and has played an active advisory role in most of the significant Michigan tax controversies in recent years. He served as a...

313-496-7963
Jeffrey S. Aronoff Public Finance Attorney Miller, Canfield, Paddock and Stone Detroit, MI
Principal

Jeffrey S. Aronoff specializes in all types of public finance and securities, including municipal infrastructure finance, economic development finance and school finance, both as bond counsel and underwriter/purchaser's counsel. He also regularly advises governmental clients on general matters including economic development initiatives, fiscal distress issues and public-private collaboration.

In addition to his broad-based work with municipalities and bond purchasers, Jeff has special expertise in airport finance and conduit financing for tax-exempt organizations and small...

313-496-7678
Steven A. Roach Litigation Attorney Miller Canfield
Principal

Steven A. Roach brings more than 30 years of commercial transaction and litigation experience in restructuring lending relationships and enforcing loan transactions. He applies this experience to provide a unique perspective as both a trial and transactional lawyer when representing and counselling the firm's financial institution clients. 

Steve has represented lenders in a variety of lending structures, including syndications, financing leases, structured debt and equity financings, multi-jurisdictional and international transactions. He has...

313.496.7933
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