Michigan Homeowner Sues State To Pay Just Compensation For Home Seizure

A woman has asked the Michigan Supreme Court to affirm her constitutional right to just compensation after Manistee County foreclosed on the home that she and her sons lived in, sold it. According to a press release from the Pacific Legal Foundation, Manistee County seized the property and unconstitutionally kept $102,636 more than she owed.

“The government can sell property to collect unpaid taxes, but it has a duty to pay just compensation when it takes more than what is owed,” said Christina Martin, senior attorney at Pacific Legal Foundation. “But Michigan uses an unusual and complicated process that is designed to fail. It is a calculated attempt by the government to avoid Supreme Court precedent so that it can unconstitutionally take property without compensation.," she added 

In 2018 Chelsea Koetter, a single mother of two boys, fell behind on her property taxes. She then mistakenly underpaid what she owed based on incorrect tax information from a local government employee. As a result, she had an outstanding tax bill that grew to $3,863 with interest, penalties, and fees.  The rural Manistee County lies on the northwestern shore of Michigan's Lower Peninsula along the shore of Lake Michigan.

In June 2021, after finding out she accidentally underpaid her taxes, Chelsea attempted to pay the overdue bill, but she had missed the deadline to save her home. No one at the Manistee County Treasurer’s office told her about the government’s duty to pay for the excess property that it took from her or that her deadline to preserve her right to be paid was about to run out on July 1.Koetter found out about the claim deadline later from a family friend, submitting her claim form just eight days late on July 9. The county rejected her claim form as tardy. Then on August 2, 2021, the county sold her home at auction for $106,500, keeping all of the profit—$102,636 more than Chelsea owed in taxes, penalties, interest, and fees.  

According to the Pacfici Legal Foundation, Koetter then filed a motion in circuit court to recover the surplus proceeds, but the court rejected the motion. When she appealed, the Michigan Court of Appeals ruled against her, saying that under state law, this procedure was the only way she could collect her rightful compensation.   

In practice, it goes like this: 

1) The clock starts each year on April 1 when tax-delinquent property titles shift to the government.  
2) The former owners have until July 1—a three-month window—to track down, fill out, notarize, and properly file a specific form that serves as formal notice of intent to claim remaining proceeds. 
3) The property is sold between August and November, after which the county treasurer notifies owners of any excess proceeds. 
4) The former owners must then file a motion in circuit court between February 1 and May 15 of the following year to recover any excess proceeds—a year or more after losing their property. 
5) At this point, property owners who actually survive the claim process will get their rightful surplus. 
6) Failing any part of this process allows the government to keep the money, even if all the rest is done correctly.

In 2020, after the Michigan Supreme Court affirmed it is unconstitutional for counties to keep more than they’re owed when collecting property taxes, the State enacted a new procedure to allow former owners to claim—and receive—surplus proceeds from sales of their tax-foreclosed property.  

However, the process is convoluted and requires homeowners to file an administrative claim before they know how much money, if any, is at stake. Later, they must figure out how to file a motion in court—in a short window of time—seeking payment for what is rightfully theirs. According to the nonprofit Pacific Legal Foundation has found that most owners fail to navigate this unusual process, giving counties large windfalls.  

Now, represented by Pacific Legal Foundation at no charge, Koetter is asking the Michigan Supreme Court to confirm her right to just compensation without complicated claims procedures and unreasonably tight deadlines getting in the way.