In Re Petition of Muskegon County Treasurer for Foreclosure ( 2023 )

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
In re PETITION OF MUSKEGON COUNTY
TREASURER FOR FORECLOSURE.
MUSKEGON COUNTY TREASURER, FOR PUBLICATION
October 26, 2023
Petitioner-Appellee, 9:00 a.m.
v No. 363764
Muskegon Circuit Court
KARI BEEMAN, LINDA HUGHES, JOHNNY LC No. 2020-002044-CZ
CHAPMAN, STEPHANIE HULKA-BERTOIA, and
SHEDRICK MI, LLC,
Respondents-Appellants.
Before: SWARTZLE, P.J., and O’BRIEN and FEENEY, JJ.
SWARTZLE, P.J.
Although self-executing, the Takings Clause must be read within the context of statutory
protections available to a property owner. In response to our Supreme Court’s decision in Rafaeli,
LLC v Oakland Co, 505 Mich 429; 952 NW2d 434 (2020), our Legislature enacted a statutory
framework by which a former owner of real property could claim the proceeds that remained, if
any, after a foreclosing government sold the property and satisfied that owner’s tax debt and related
fees. This framework has several salient features, including pre-sale notice by the foreclosing
government; a clear explanation of the former owner’s rights and responsibilities; and an express
deadline by which the former owner must respond.
Respondents challenge the adequacy of this statutory framework and how it was applied
here by the country treasurer. As we explain, this statutory framework comports with procedural
due process and other constitutional requirements. Furthermore, the county treasurer followed the
law by providing the required notices. Unfortunately, respondents did not similarly follow the
law, and because they did not, they forfeited any right to the proceeds that remained after the
satisfaction of their tax debts.
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I. BACKGROUND
A. STATUTORY FRAMEWORK POST-RAFAELI
An overview of recent Supreme Court case law and our Legislature’s response will help
frame the arguments on appeal. Briefly, our Supreme Court held in Rafaeli that a former owner
of real property sold at a tax-foreclosure sale for more than what was owed in taxes, interests,
penalties, and fees had “a cognizable, vested property right to the surplus proceeds resulting from
the tax-foreclosure sale.” Id. at 484. This right continued to exist after fee simple title to the
properties vested with the foreclosing governmental unit (FGU). The FGU’s “retention and
subsequent transfer of those proceeds into the county general fund amounted to a taking of
plaintiffs’ properties under Article 10, § 2 of [Const 1963],” and the former owners were entitled
to just compensation in the form of the return of the surplus proceeds. Id. at 484-485. When the
Court decided Rafaeli, the General Property Tax Act (GPTA), MCL 211.1 et seq., did not provide
a mechanism by which former property owners could recover their surplus proceeds.
In response to Rafaeli, our Legislature passed 2020 PA 255 and 2020 PA 256, which were
given immediate effect on December 22, 2020. These acts purported to “codify and give full effect
to the right of a former holder of a legal interest in property to any remaining proceeds resulting
from the foreclosure and sale of the property to satisfy delinquent real property taxes” under the
GPTA. 2020 PA 256, enacting § 3. At issue in the current appeal is MCL 211.78t, a provision
added to the GPTA by 2020 PA 256. Section 78t provides the statutory means for a former
property owner to claim and receive any applicable “remaining proceeds” from the tax-foreclosure
sales of that person’s former properties.
A former property owner whose properties sold at a tax-foreclosure sale after July 17,
2020, the date the Rafaeli decision was issued, and who intends to recover any surplus proceeds
from the sale, is required to notify the FGU of that intent by submitting Form 5743 by the July 1st
immediately following the effective date of the foreclosure of the property. Form 5743 must be
notarized and filed with the FGU “by personal service acknowledged by the FGU or by certified
mail, return receipt requested.” MCL 211.78t(2). A property owner who satisfies these
requirements becomes a “claimant.”
In the January immediately following the sale or transfer of a foreclosed property, the FGU
notifies the claimant about the total amount of remaining proceeds or the amount of shortfall in
proceeds, among other things. MCL 211.78t(3)(i). The notice must explain that the claimant may
file a motion in the circuit court in the foreclosure proceeding to recover any excess proceeds.
MCL 211.78t(3)(k). A claimant has from February 1st to May 15th of the year immediately
following the tax-foreclosure sale to file the motion. MCL 211.78t(4).
At the end of this claim period, the FGU responds by: (i) verifying that the claimant timely
filed Form 5743, and (ii) identifying any remaining proceeds. MCL 211.78t(5)(i). Specifically,
the FGU files with the circuit court proof of service of the notice that the FGU mailed to the
claimant in January, along with additional information identifying the property and the details of
its sale, including the amount of any remaining proceeds or shortfall in proceeds.
MCL 211.78t(5)(i).
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The circuit court then holds a hearing to determine the relative priority of the claimant’s
interest in any excess value. After requiring the payment of a sales commission to the FGU of 5%
of the amount for which the property was sold, the circuit court then “allocate[s] any remaining
proceeds based on its determination of priority, and order[s] the FGU to pay the remaining
proceeds” to the claimant. MCL 211.78t(9). The FGU has 21 days to pay the amounts ordered by
the circuit court. MCL 211.78t(10).
B. FACTS AND PROCEEDINGS
The material facts in this appeal are not in dispute. Respondents owned real properties in
Muskegon County and fell behind on their property taxes. Petitioner, acting as the FGU,
foreclosed their properties, effective March 31, 2021. None of the respondents timely filed Form
5743 conveying an intent to claim an interest in any excess proceeds. The properties were sold at
auction and the proceeds applied to respondents’ delinquent property taxes, interests, penalties,
and fees. Each property sold for significantly more than its respondent-owner owed.
Subsequently, from December 2021 to April 2022, each respondent submitted an untimely
Form 5743. Petitioner rejected the forms because they were filed after “the July 1 immediately
following the [March 31, 2021] effective date of the foreclosure of the property.” MCL 211.78t(2).
In May 2022, respondents moved separately to recover the remaining proceeds under MCL
211.78t(4). Petitioner opposed the motions, arguing that respondents were barred from seeking
distribution of the remaining proceeds because they did not file Form 5743 before July 1, 2021.
Respondents replied, raising several arguments pursued now on appeal.
The circuit court held a hearing on respondents’ motions. Ruling from the bench, the
circuit court found that the requirement of filing a notice of intent (i.e., Form 5743) by July 1st
was clear and unambiguous and had to be enforced as written and that 2020 PA 256 afforded
adequate due process. The trial court denied respondents’ motions, and respondents appealed by
leave granted. In re Petition of Muskegon Co Treasurer for Foreclosure, unpublished order of the
Court of Appeals, entered February 2, 2023 (Docket No. 363764).
II. ANALYSIS
On appeal, respondents claim that the procedures described in MCL 211.78t are not the
exclusive means for recovering surplus proceeds, and petitioner engaged in an unlawful taking of
their property. They also contend that the annual July 1st deadline for filing a notice of intent is
unenforceable, they were not provided adequate due process, and the entire statutory scheme
violates the Supremacy Clause. As explained, each of these arguments fails.
A. STANDARD OF REVIEW AND PRESERVATION
In reviewing the circuit court’s resolution of a motion under MCL 211.78t, this Court
reviews factual findings for clear error. In re Tato, 339 Mich App 654, 661; 984 NW2d 849(2021). With respect to questions of law—including the interpretation and application of
constitutional provisions and statutes—this Court reviews these de novo. Kilpatrick v Lansing
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Community College, __ Mich App __, __; __ NW2d __ (2023) (Docket No. 361300); In re
Contempt of Murphy, __ Mich App __, __; __ NW2d __ (2023) (Docket No. 360560).
Respondents did not squarely raise their claims involving exclusivity of the statutory-claim
scheme or the harshness/unreasonableness of the July 1st deadline in the circuit court or the
questions presented on appeal. Under our raise-or-waive jurisprudence in ordinary civil appeals,
these claims are deemed waived and not preserved for appellate review. Tolas Oil & Gas
Exploration Co, ___ Mich App ___, ___; ___ NW2d ___ (2023) (Docket No. 359090); slip op
at 5. The Court will, however, overlook respondents’ failure to preserve because the claims
involve questions of law with undisputed facts and their resolution is necessary for proper
resolution of the appeal. Id.B. EXCLUSIVITY OF MCL 211.78t
The Court begins with respondents’ claim that the process set forth in MCL 211.78t is not
the exclusive means for recovering excess proceeds. As noted earlier, our Legislature enacted
2020 PA 256 in response to Rafaeli, and the statute was meant “to codify and give full effect to
the right of a former holder of a legal interest in property to any remaining proceeds resulting from
the foreclosure and sale of the property to satisfy delinquent real property taxes under the [GPTA].”
2020 PA 256, enacting § 3. And, with specific respect to exclusivity, our Legislature’s own words
could hardly be clearer: Section 78t “is the exclusive mechanism for a claimant to claim and
receive any applicable remaining proceeds under the laws of this state.” MCL 211.78t(11)
(emphasis added). Giving “exclusive” its plain, ordinary meaning, MCL 8.3a, our Legislature
intended MCL 211.78t as the sole mechanism by which a former owner of foreclosed property
could obtain any proceeds remaining from the tax-foreclosure sale and satisfaction of the owner’s
delinquent taxes and associated costs.
But, respondents argue, it is unclear what interest 2020 PA 256 was intended to protect.
Whereas Rafaeli referred to “surplus proceeds,” see, e.g., 505 Mich at 437, MCL 211.78l(1) refers
to “any proceeds,” and MCL 211.78t refers to “remaining proceeds.”
With respect to “any proceeds,” MCL 211.78l(1) addresses how owners of extinguished
interests in property sold or transferred at a tax-foreclosure sale may recover the property or their
interests in the property. It states that “[a]n action to recover any proceeds from the sale or transfer
of property foreclosed for nonpayment of real property taxes under this act must be brought as
provided under section 78t.” MCL 211.78l(1). “Any,” construed according to its “common and
approved usage,” MCL 8.3a, indicates “one or some indiscriminately of whatever kind,” “one,
some, or all indiscriminately of whatever quantity,” or “unmeasured or unlimited in amount,
number, or extent.” Merriam-Webster’s Collegiate Dictionary (11th ed), p 56. “Any proceeds”
is sufficiently broad to suggest that the Legislature intended to include proceeds of any kind in the
category.
Moreover, MCL 211.78l itself directs persons who wish to recover proceeds from the sale
or transfer of foreclosed property to MCL 211.78t. No one could reasonably read “any proceeds”
in MCL 211.78l and conclude that it does not include the “remaining proceeds” addressed in MCL
211.78t. “Any proceeds,” as used in MCL 211.78l does not irreconcilably conflict with the use of
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“remaining proceeds” in MCL 211.78t, nor have respondents shown that “any proceeds” or
“remaining proceeds,” are equally susceptible to more than a single meaning.
Rather than an ambiguity between “any proceeds” and “remaining proceeds,” the real
gravamen of respondents’ position appears to be that, in their opinion, the “remaining proceeds”
of MCL 211.78t means something less than the “surplus proceeds” of Rafaeli because a 5% sales
commission can be retained by the FGU under the statutory scheme. In effect, with 2020 PA 256,
our Legislature did not faithfully codify the full holding of Rafaeli, according to respondents. This
argument, however, misses the mark, as it is directed to the question whether our Legislature
actually addressed the constitutional infirmity of the prior GPTA. The argument has no bearing
on the separate question of whether our Legislature intended its amendments to be the exclusive
mechanism for a former property owner to pursue a constitutional claim.
Respondents also attempt to avoid the exclusivity of MCL 211.78t by arguing that the
section does not apply to all former property owners but only to “claimants,” i.e., to those who
choose to seek remaining proceeds in accordance with MCL 211.78t. They argue that use of the
word “may” in MCL 211.78t(1) denotes permissiveness and indicates that former property owners
could have pursued their surplus proceeds as claimants under MCL 211.78t but were not required
to do so. Only if they chose to use MCL 211.78t as the means of recovering their surplus proceeds
did they have to comply with subsection (2) by filing a notice of intent by July 1, 2021.
This argument fails for several reasons: First, respondents did try to recover their
remaining proceeds under MCL 211.78t but failed to satisfy its requirements, so it is not clear that
they even have standing to make the claim on appeal. Second and more importantly, it is the case
that “may” generally denotes discretion. Walters v Nadell, 481 Mich 377, 383; 751 NW2d 431(2008). Former property owners who owe more in taxes, penalties, and fees than their homes are
worth may exercise their discretion by not submitting a notice of intent. See Rafaeli, 505 Mich
at 447 (noting that “sale proceeds are often insufficient to cover the full amount of delinquent
taxes, interest, penalties, and fees related to the foreclosure and sale of the property”). Thus,
respondents are correct that they had the choice to pursue their claims in accordance with MCL
211.78t. The flaw in their argument is their assumption that the alternative to pursing a claim
under MCL 211.78t was to pursue a claim by some other means—rather, their alternative was not
to claim an interest in the foreclosed property in the first place.
The specific language of MCL 211.78t indicates our Legislature’s intent for the statute to
serve as the sole mechanism by which former property owners can recover proceeds remaining
after the sale or transfer of their foreclosed properties and the satisfaction of their tax debt and
related costs. The use of “remaining proceeds” and “any proceeds” does not create an ambiguity,
and respondents have not identified any other means provided by the GPTA for them to recover
excess proceeds.
C. THE “HARSH-AND-UNREASONABLE” EXCEPTION
In the alternative, respondents argue that the relatively short timeframe for pursuing a claim
is harsh and unreasonable. The “harsh-and-unreasonable” exception has been applied to statutes
of limitations and notice requirements when the consequences of strictly enforcing a time period
are so harsh and unreasonable that it “effectively divested plaintiffs of the access to the courts
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intended by grant of the substantive right.” Rusha v Dep’t of Corrections, 307 Mich App 300,
311; 859 NW2d 735 (2014) (cleaned up).
Rusha provides an example of factual circumstances that did not warrant application of the
exception. At issue in Rusha was whether failure to file the six-month notice required by
MCL 600.6431(1) barred the plaintiff’s constitutional-tort claim against the government
defendant. The Court of Claims ruled that the notice requirement did not apply to constitutional
torts. This Court reversed, explaining that “it was well established that the Legislature may impose
reasonable procedural requirements, such as a limitations period, on a plaintiff’s available
remedies even when those remedies pertained to alleged constitutional violations.” Id. at 307
(cleaned up). Further, the Legislature’s ability “to set reasonable procedural requirements is
broadly construed.” Id. at 308. “The only limitation, unless otherwise expressly indicated, on
legislation supplementary to self-executing constitutional provisions is that the right guaranteed
shall not be curtailed or any undue burdens placed thereon.” Id. The imposition of a notice
requirement on the self-executing prohibition against cruel-or-unusual punishment was a “minimal
procedural burden,” and “it [could] hardly be said that application of the six-month notice
provision of § 6431(3) effectively divested plaintiff of the ability to vindicate the alleged
constitutional violation or otherwise functionally abrogated a constitutional right.” Id. at 308, 312.
Providing statutory notice required only ordinary knowledge and diligence. See id. at 312-313.
By contrast, Mays v Snyder, 323 Mich App 1; 916 NW2d 227 (2018), provides an example
of factual circumstances that warrant application of the harsh-and-unreasonable circumstances
exception. The context for Mays was the Flint River water crisis. The plaintiffs sued the
government defendants without having filed the notice of intention to file a claim required by MCL
600.6431, and the defendants moved for summary disposition under MCR 2.116(C)(4) (court lacks
subject-matter jurisdiction) and (C)(7) (immunity provided by law). The Court of Claims denied
the defendants’ motion. Id. at 23-24. Affirming the denial, this Court reasoned that summary
disposition “would deprive plaintiffs of access to the courts and effectively divest them of the
ability to vindicate the constitutional violations alleged.” Id. at 35. Also significant were the
plaintiffs’ allegations that several state actors purportedly took affirmative actions to conceal the
hazardous nature of the Flint River water, as well as any event that would trigger the running of
the six-month period. As a consequence of this alleged concealment, the burden on the plaintiffs
to meet the filing requirement would have been more than minimal, as “it would have required
clairvoyant recognition of circumstances that the state was working to convince the public did not
actually exist.” Id. at 36 n 9.
The present case resembles Rusha more than Mays. Unlike the state actors in Mays, there
are no allegations that petitioner tried to conceal from respondents any information necessary to
claim an interest in proceeds remaining after the tax-foreclosure sale of their properties and
satisfaction of their tax debt and associated costs. Respondents have not disputed that they
received several notices1 involving foreclosure or that they received notices after their properties
1
Respondents assert in passing on appeal that it is unclear whether they had actual notice of the
July 1st filing deadline, as petitioner made no attempt to prove that they did. Respondents did not
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were foreclosed informing them that their properties may be sold for more than the amount that
they owed to the FGU; anyone who had an interest in the property before foreclosure had a right
to file a claim for remaining proceeds; and notice of an intent to claim excess proceeds had to be
submitted before July 1, 2021. The same notices identified the form that respondents had to file
(Form 5743), and the notices told them how to obtain and submit the form. As was the case in
Rusha, the burden to submit Form 5743 was minimal and required only ordinary knowledge and
diligence. Respondents suggest that completing Form 5743 was more than minimally burdensome
because it had to be notarized and personally delivered or sent by certified mail. The notice
required under MCL 600.6431 also had to be notarized, but the Rusha Court did not appear to
consider that requirement unduly burdensome, Rusha, 307 Mich App at 310, 312, 313, and neither
do we here.
Respondents argue that the harsh consequences of missing the deadline make strict
enforcement of the deadline unreasonable. This could have also been said of the plaintiff in Rusha,
however, whose failure to file the minimally burdensome notice required by MCL 600.6431 cost
him the opportunity to take legal action to vindicate the constitutional right to be free from cruel-
or-unusual punishment. The notice requirement affected the Rusha plaintiff’s remedy; it did not
deprive him of his constitutionally protected, substantive right. MCL 600.6431 “supplement[ed]
the constitutional protection at issue by placing a reasonable, albeit minimal, burden on a plaintiff
to advise the state of potential claims.” Rusha, 307 Mich App at 313.
The notice requirement of MCL 211.78t(2) is not a presuit requirement, and its purpose
differs from that of the notice requirement in MCL 600.6431(1). Nevertheless, similar to MCL
600.6431, MCL 211.78t(2) imposes a reasonable, minimal burden on former owners to advise the
FGU of their intent to exercise that right by claiming any remaining proceeds. In the present case,
respondents had a constitutionally protected right to proceeds remaining after satisfaction of their
tax debt and associated costs, and they had an opportunity to begin the process of recovering those
proceeds through the minimally burdensome completion of a single-page form. The circumstances
of this case do not justify application of the harsh-and-unreasonable consequences exception to the
statutory notice requirement of MCL 211.78t(2).
D. DUE PROCESS
The Court now moves to respondents’ constitutional arguments, beginning with due
process. Under both the Michigan and federal Constitutions, no person may be deprived of life,
liberty, or property without due process of law. US Const, Am V; US Const, Am XIV; Const
1963, art 1, § 17. “These [due-process] protections apply to vested property interests.” Souden v
Souden, 303 Mich App 406, 413; 844 NW2d 151 (2013). Our Supreme Court held in Rafaeli, 505
Mich at 484, that a former property owner has “a cognizable, vested property right to the surplus
proceeds resulting from the tax-foreclosure sale of their properties.”
argue lack of notice in the circuit court. In fact, respondents’ attorney stated during the August 5,
2022 motion hearing: “I’m not saying no notice. I’m just simply saying it’s not sufficient notice.”
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Due process is not a one-size-fits-all concept. It is, rather, “flexible and calls for such
procedural protections as the particular situation demands.” Mathews v Eldridge, 424 US 319,
332, 334; 96 S Ct 893; 47 L Ed 2d 18 (1976). Courts generally consider three factors to determine
what is required by due process:
First, the private interest that will be affected by the official action; second, the risk
of an erroneous deprivation of such interest through the procedures used, and the
probable value, if any, of additional or substitute procedural safeguards; and finally,
the Government’s interest, including the function involved and the fiscal and
administrative burdens that the additional or substitute procedural requirement
would entail. [Id. at 335.]
The private interest affected by an FGU’s compliance with MCL 211.78t is a former
property owner’s right to the proceeds remaining after the tax-foreclosure sale and the satisfaction
of tax debt and associated costs. If the procedures are followed, the risk of an erroneous
deprivation is nil—when a former property owner submits a timely and otherwise proper Form
5743, the FGU will be on notice that the former owner intends to exercise the right to proceeds,
and the FGU will be required to notify that person of any proceeds remaining after satisfaction of
the tax delinquency as well as how to file a claim. MCL 211.78t(3). Finally, as for the government
interest involved, the FGU has an interest in having taxes paid in full as well as clarifying within
a reasonable time period who has the right to any surplus from forfeited properties.
The statutory scheme set up by our Legislature and followed by petitioner satisfies due
process. The notices informed respondents of their right to claim any excess proceeds and told
them how to express their intent to exercise that right. First, a former owner is given pre-
deprivation notice of a foreclosure and sale to satisfy unpaid taxes and associated costs. Second,
the former owner is given several months to file a form indicating an intent to seek the remaining
proceeds (if any) that might exist after the sale and satisfaction of taxes and related costs. If the
statutory scheme is followed by the former owner and FGU, there will be no constitutional
deprivation like the one in Rafaeli. This is all that due process requires in this situation.
Respondents retort, however, that the statutory scheme is deficient because the FGU has
discretion whether to send a notice of existing surplus to a former property owner. This is,
however, a false description of the statutory scheme. As already explained, the statutory scheme
mandates that an FGU must provide, at the time a judgment of foreclosure is effective, an
explanation to all persons with an interest in property of their right to claim any proceeds remaining
after the sale and satisfaction of tax debt. MCL 211.78g(2), MCL 211.78i(7). If a former property
owner submits a timely Form 5743, then the FGU must pay out any remaining proceeds to that
person in accordance with MCL 211.78t. The FGU has no discretion under this statutory
framework.
Rather, what respondents really want is different, i.e., post-sale, process. Specifically, they
contend, the FGU should have notified each of them after the respective tax-foreclosure sale.
Implicit in this argument is the necessary corollary that along with a post-sale notification, the
Legislature should have also provided a means for a prior property owner to claim excess proceeds
even if that owner failed to provide timely notification. Although some states have adopted such
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systems, see Jenna Christine Foos, State Theft in Real Property Tax Foreclosure Procedures, 54
Real Prop Tr & Est LJ 93, 100 (2019), that is not the system adopted by our Legislature. So long
as the statutory scheme adopted by our Legislature comports with due process—as MCL 211.78t
does—whether such a scheme makes sense or not, or whether a “better” scheme could be devised,
are policy questions for the Legislature, not legal ones for the Judiciary. D’Agostini Land Co LLC
v Dep’t of Treasury, 322 Mich App 545, 560; 912 NW2d 593 (2018).
Respondents also make a rather technical argument that the notices were inadequate
because they purportedly did not specifically identify the precise property to be taken, i.e., the
remaining surplus. Respondents interpret Rafaeli as holding that a former property owner’s right
to recover remaining proceeds arises only after the sale; therefore, only notices that an FGU sends
after a tax-foreclosure sale, identifying the precise excess proceeds available to the former property
owner, can satisfy due process.
Contrary to respondents’ argument, however, the right at issue here is not a novel or
uncertain one that springs into existence only after a forfeiture and sale. The right to collect
proceeds remaining after the tax-foreclosure sale of property existed under English common law,
was “firmly established in the early years of Michigan statehood,” and was a common-law right
routinely understood to exist by the ratifiers of the Michigan Constitution in 1963. Rafaeli, 505
Mich at 462-464, 472. Although respondents may not have had a compensable claim before the
tax-foreclosure sale generated a surplus, the right to collect excess proceeds existed before the tax-
foreclosure sale. As the Rafaeli Court explained, “While plaintiffs’ takings claim was not
compensable until their properties sold for an amount in excess of their tax debts, that lack of an
immediate right to collect the surplus proceeds does not mean that plaintiffs had no right to collect
the surplus proceeds at all.” Id. at 476-477 Petitioner’s notices were not rendered inadequate by
the fact that they were sent to respondents before the tax-foreclosure sale—if anything, the earlier
notice was an even greater safeguard of respondents’ rights than the post-sale notice that they
advocate for now.
E. TAKINGS
Finally, respondents argue that, by imposing an administrative prerequisite on recovery,
MCL 211.78t impinges on respondents’ vested property interests. They maintain that this results
in a classic taking and requires just compensation under Const 1963, art 10, § 2, and the Fifth
Amendment to the federal Constitution, as applied to the states through the Fourteenth
Amendment. The 5% sales commission is also a taking, in their opinion. As a result, they argue
that MCL 211.78t must be considered preempted by federal law and rendered invalid by the
Supremacy Clause.
In addition to the Takings Clauses and Supremacy Clause, respondents also couch these
arguments in terms of substantive due process. We reject this resetting of respondents’ arguments.
When, as here, “a constitutional claim is covered by a specific constitutional provision . . . the
claim must be analyzed under the standard appropriate to that specific provision, not under the
rubric of substantive due process.” United States v Lanier, 520 US 259, 272 n 7; 117 S Ct 1219;
137 L Ed 2d 432 (1997).
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Considering first the takings argument, the Michigan Constitution prohibits the
government from taking private property for public use “without just compensation being first
made or secured in a manner prescribed by law.” Const 1963, art 10, § 2. “Although the courts
of this state have applied the state and federal Takings Clauses coextensively in many situations,
this Court has found that Const 1963, art 10, § 2 offers broader protection than do US Const, Ams
V and XIV.” AFT Mich v Michigan, 497 Mich 197, 217; 866 NW2d 782 (2015) (citation omitted).
With that said, respondents have not argued that Const 1963, art 10, § 2 should be applied any
differently than the federal Takings Clause; therefore, this Court need “not inquire further whether
it would be proper to do so.” Id. at 218. Accordingly, we will consider the two clauses in tandem
for purposes of this appeal.
Although not binding on this Court’s interpretation of Michigan’s Constitution, the federal
Supreme Court’s decision in Nelson v City of New York, 352 US 103; 77 S Ct 195; 1 L Ed 2d
(1956), applying the federal Takings Clause, provides helpful guidance. The relevant issue in
Nelson, 352 US at 109, was whether the City’s retention of surplus proceeds that far exceeded the
value of a property owner’s delinquent water charges constituted a taking of private property
without just compensation. The owner owed $814.50, and his property was assessed at $46,000.
The City satisfied the statutory-notice requirements, and, when the owner did not file a timely
answer in the foreclosure procedure asserting that the value of his property exceeded the amount
of his debt, the court entered a foreclosure by default and the City obtained title to the property.
Id. at 106, 110. The owner filed an action to recover the surplus proceeds, arguing, among other
things, that retention of the proceeds constituted an unconstitutional taking without just
compensation. Id. at 109. The Supreme Court disagreed, holding that there was no compensable
taking when there was a statutory path for property owners to recover surplus proceeds, but the
property owners failed to avail themselves of that procedure. Id. at 110.
The present case is similar to Nelson. Petitioner provided respondents with notice that
adequately informed them of the steps to take to recover any proceeds that remained after the tax-
foreclosure sale of their properties and the satisfaction of their tax debts and associated costs. The
first step toward recovery was the minimally burdensome requirement of informing the FGU of
the intent to assert a claim for any excess proceeds through the timely submission of Form 5743.
Respondents did not take this action. Following the reasoning of the Nelson Court, respondents
did not suffer a compensable taking.
Respondents contend that Nelson is inapplicable to the present case because 2020 PA 256infringes on a constitutional guarantee. Respondents have failed to show, however, how the
minimally burdensome procedures described in MCL 211.78t infringe on the right to collect excess
proceeds. Respondents also assert that the Rafaeli Court considered the impact of Nelson and
rejected its application in this instance.
The Rafaeli Court did not find Nelson helpful because Nelson did not speak to the factual
situation in Rafaeli; it did not tell our Supreme Court “what occurs when the statutes governing
foreclosure make no mention of, or expressly preclude, a divested property owner’s right to the
surplus proceeds, but the divested property owner establishes a property right to the surplus
proceeds through some other legal source, such as the common law.” Rafaeli, 505 Mich at 461.
Nelson did not provide guidance because the statutes governing foreclosure in Rafaeli did not
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acknowledge former property owners’ rights to recover surplus, let alone provide a means for
recovery.
Nor did Rafaeli “prevent[] the Legislature from enacting legislation that would require
former property owners to avail themselves of certain procedural avenues to recover surplus
proceeds.” Rafaeli, 505 Mich at 473 n 108. Just the opposite—the Court merely held “that the
Legislature may not write this constitutionally protected vested property right out of existence.”
Id. In response to Rafaeli, our Legislature rectified this constitutional infirmity with 2020 PA 256,
and respondents have not shown that the act wrote their constitutionally protected property rights
out of existence by imposing a notice requirement.
Respondents urge this Court to follow a recent decision of the federal Supreme Court
decision of Tyler v Hennepin Co, Minnesota, ___ US ___; 143 S Ct 1369; ___ L Ed 2d ___ (2023).
Tyler is not, however, factually similar to the present case; rather, it is similar to Rafaeli. Hennepin
County sold Tyler’s home for $40,000 to satisfy a $15,000 tax bill and kept the $25,000 surplus
proceeds. At issue was whether this constituted an unconstitutional taking in violation of the Fifth
Amendment. Tyler, ___ US at ___; 143 S Ct at 1373. Minnesota argued that Tyler had no property
interest in the surplus proceeds under a 1935 law that purported to extinguish that property interest
by “providing that an owner forfeits her interest in her home when she falls behind on her property
taxes.” Id. at ___; 143 S Ct at 1376. The Supreme Court held that Minnesota had the power to
sell Tyler’s home to recover unpaid property taxes, “[b]ut it could not use the toehold of the tax
debt to confiscate more property than was due.” Id. The Court held that Minnesota had committed
“a classic taking,” and that Tyler had stated a claim under the Takings Clause and was entitled to
just compensation. Id. The Supreme Court noted that Tyler differed from Nelson because
“Minnesota’s scheme provide[d] no opportunity for the taxpayer to recover the excess value; once
absolute title has transferred to the State, any excess value always remains with the State.” Id.
at ___; 143 S Ct at 1379. Rather, because Michigan now provides an opportunity for respondents
to recover the excess value of their property, Tyler does not compel a different outcome here.
Respondents separately argue that the 5% sales commission is an unconstitutional taking
because it goes beyond the delinquent taxes, interest, penalties, and fees reasonably related to the
foreclosure and sale of the property. This Court need not consider the claim, however, because
respondents were never subject to the sales commission, given their failure to make a valid claim
in the first place.
Finally, as for the Supremacy Clause, it is plainly not applicable here. Respondents seem
to argue that their right to excess proceeds is protected by federal law, and no state law may be
passed or interpreted in such a way as to deny that right. But this is not what happened here. As
already explained, respondents did have a constitutionally protected right to excess proceeds
remaining after the tax-foreclosure sale of their real properties and the satisfaction of their tax debt
and related costs. They had notice and an opportunity to begin the process of recovering those
proceeds through the minimally burdensome completion of a one-page form. They failed to submit
the form by the July 1st statutory deadline and, as a result, they failed to act to enforce that right
through the exclusive statutory mechanism created by our Legislature. Simply put, respondents
have not shown that MCL 211.78t or any part of the statutory scheme violates due process or the
Takings Clause, and the Supremacy Clause has no application in the present case.
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III. CONCLUSION
As the Rafaeli Court recognized, a former property owner has a constitutional right to the
monetary proceeds, if any, that exist after a foreclosure sale and satisfaction of tax debt and related
costs. In response to Rafaeli, our Legislature enacted a statutory scheme by which such owners
can enforce their constitutional rights, and, as explained, this scheme passes constitutional muster.
Respondents failed to avail themselves of these statutory protections, and, as a result, they failed
to enforce their constitutional rights. The failure is theirs, not petitioner’s or our Legislature’s.
Affirmed.
/s/ Brock A. Swartzle
/s/ Colleen A. O’Brien
/s/ Kathleen A. Feeney
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