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IN THE SUPREME COURT APPEAL FROM THE COURT OF APPEALS

Markey, P.J., and Meter and Shapiro, JJ.

RAFAELI, LLC and ANDRE OHANESSIAN,

Plaintiffs-Appellants, Supreme Court No. 156849

v Court of Appeals No. 330696

OAKLAND COUNTY and ANDREW MEISNER, Oakland County Circuit Court No. 15·147429-CZ

Defendants·Appellees.

-----------------~/

This appeal involves a ruling that a prov1s1on of the Constitution, a statute, rule, or regulation, or other State governmental action is invalid.

Charles A. Lawler (P65164) CLARK HILL PLC 212 East Cesar E. Chavez Avenue Lansing, Michigan 48906 (517) 318·3100 claw le r@clarkhill.com Counsel for Amicus Curiae Michigan Association of County Treasurers

Kevin T. Smith (P32825) 3617 N. M-52 Owosso, Michigan 48867 (989) 723·2008 smithk1995@charter.net Co-counsel for Amicus Curiae Michigan Association of County Treasurers

[AMENDED] BRIEF ON APPEAL OF AMICUS CURIAE MICHIGAN ASSOCIATION OF COUNTY TREASURERS

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TABLE OF CONTENTS

TABLE OF CONTENTS ................................................................................................................... .i

INDEX OF AUTHORITIES ........................................................................................................... iii

STATEMENT OF QUESTION INVOLVED .................................................................................. 1

STATEMENT OF JURISDICTION ................................................................................................ 2

IDENTITY AND INTEREST OF AMICUS CURIAE ................................................................... 2

INTRODUCTION AND SUMMARY OF ARGUMENT ............................................................... 7

MICHIGAN'S TAX FORECLOSURE PROCESS ........................................................................ 9

STATEMENT OF FACTS AND PROCEEDINGS BELOW ...................................................... 15

STANDARD OF REVIEW ............................................................................................................. 15

ARGUMENT .................................................................................................................................... 16

I. Tax Foreclosure and the Resulting Sale of Foreclosed Property does not Violate the Takings Clauses of the State or Federal Constitutions ..................... 16

A. The foreclosure of real property taxes and the resulting sale of foreclosed property does not implicate the Takings Clauses of the State or Federal Constitutions .................................................................... 16

B. Because Plaintiffs-Appellants had no property interest under State law at the time of the sale of the foreclosed property, there was no taking of their property under either the Federal or State Constitutions ................................................................................................. 21

C. The retention of excess sale proceeds does not violate the Fifth or Fourteenth Amendments ............................................................................. 25

II. Public Policy Strongly Supports Affirming the Court of Appeals Decision ..................................................................................................................... 28

A. Holding that a tax foreclosure constitutes a taking of property without just compensation could eliminate any incentive for property owners to pay delinquent real property taxes ........................... 29

B. Eliminating foreclosure as a means of enforcing property tax laws would reduce government's ability to address blight. .............................. 32

C. The Legislature can create the remedy Plaintiffs-Appellants seek without destroying Michigan's tax foreclosure process ............................ 33

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III. Because Foreclosure and Sale of Tax Delinquent Property is Intended as an Incentive for Property Owners to Pay Delinquent Taxes there is No Reason to Remand this Matter for Consideration of Eighth Amendment Arguments ................................................................................................................. 34

CONCLUSION AND RELIEF REQUESTED .............................................................................. 37

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INDEX OF AUTHORITIES

Cases

Austin v United States, 509 US 602; 113 S Ct 2801; 125 L Ed 2d 488 (1993) 34, 35

Bennis v Michigan, 516 US 442; 116 S Ct 994; 134 L Ed 2d 68 (1996) ................ 20

City of Auburn v Mandarelli, 320 A2d 22 (Me, 1974) ..................................... 26, 27

City of New York v Chapman Docks Co, 1 App Div 2d 895; 149 NYS2d 679 (1956) ................................................................................................................... 27

County of Mobile v Kimball, 102 US 691; 26 L Ed 23 8 (1881) ....................... 16, 19

Dewees v United States, 272 F Supp 3d 96 (DDC, 2017) ....................................... 35

First National Bank of Chicago v Dep't of Treasury, 485 Mich 977; 774 NW2d 912 (2009) ............................................................................................................ 28

Freed v Thomas, ED Mich No. 17-cv-13519, Opinion and Order entered Nov 7, 2018, app pending No. 18-2312 (CA 6) .......................................................... 28

Helvering v Mitchell, 303 US 391; 58 S Ct 630; 82 L Ed 917 (1938) .................... 35

James A Welch Co, Inc v State Land Office Board, 295 Mich 85; 294 NW 3 77 (1940) ............................................................................................................. 23, 24

Kelly v City of Boston, 348 Mass 385; 204 NE2d 123 (1965) .......................... 26, 27

Krench v Michigan, 277 Mich 168; 269 NW 131 (1936) ................................. 23, 24

Laborde v City of Gahanna, 561 F App'x 476 (CA 6, 2014) ................................. 17

Little v Commissioner, 106 F3d 1445 (CA 9, 1997) ......................................... 34, 35

Lucas v South Carolina Coastal Council, 505 US 1003; 112 S Ct 2886; 120 L Ed 2d 798 (1992) .................................................................................................. 21

MacKechnie v Sullivan County, 478 US 1006; 106 S Ct 3299; 92 L Ed 2d 713 (1986) 26 .............................................................................................................. 26

McNichols v Commissioner, 13 F3d 432 (CA 1, 1993) .......................................... 35

Meltzer v State Land Office Board, 301 Mich 541; 3 NW2d 875 (1942) ............... 24

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Michigan Coalition of State Employee Unions v Civil Service Comm, 465 Mich 212; 634 NW2d 692 (2001) ................................................................................. 15

Nelson v City of New York, 352 US 103; 77 S Ct 195; 1 L Ed 2d 171 (1956) .................................................................................... passim

Oosterwykv Milwaukee County, 31 Wis 2d 513; 143 NW2d 497, cert den 385 US 981; 87 S Ct 528; 17 L Ed 2d 442 (1966) ........................... 26, 27

People v Kennedy, 502 Mich 206; 917 NW2d 355 (2018) ..................................... 15

People ex rel Attorney Gen v Supervisors of St Clair County, 30 Mich 388 (1874) ..................................................................................................................... 2

Rental Properties Owners Ass 'n of Kent Co v Kent Co Treasurer, 308 Mich App 498; 866 NW2d 817 (2014), lv den 498 Mich 853; 865 NW2d 19 (2015) ................................................................................................................... 33

Sheehan v Suffolk County, 67 NY2d 52; 490 NE2d 523, 499 NYS2d 656, cert den MacKechnie v Sullivan County, 4 78 US 1006; 106 S Ct 3299; 92 L Ed 2d 713 (1986) ....................................................................................................... 26

Wayside Church v Van Buren County, 847 F3d 812 (CA 6), cert den_ US_; 138 S Ct 380; 199 L Ed 2d 278 (2017) ................................................................ 28

Wayside Church v Van Buren County, WD Mich No. 1:14-cv-1274, Opinion and Order entered Nov 15, 2015 .......................................................................... 28

Constitutions

US Const, Fifth Amendment ............................................................................ passim

US Const, Eighth Amendment .............................................................. 34, 35, 36, 37

US Const, Fourteenth Amendment ................................................................... 16, 25

Mich Const 1963, art 7, sec 4 .................................................................................... 2

Mich Const 1963, art 10, sec 2 ......................................................................... passim

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Statutes

1893 PA 206, as amended, MCL 211.1-.155 (GPTA) ..................................... passim

1937 PA 155 ............................................................................................................ 23

1937 PA 155, § 7 ..................................................................................................... 24

1999 PA 123 ..................................................................................................... passim

1999 PA 123, § 78p(4), repealed by 2003 PA 263 ................................................... 3

2003 PA 246 ............................................................................................................ 29

2003 PA 258, MCL 124.751 et seq ......................................................................... 32

MCL 124.752 ........................................................................................................... 32

MCL 206.520 ........................................................................................................... 36

MCL211.7u ............................................................................................................. 36

MCL 211.47(1) ........................................................................................................ 31

MCL 211.47(2) ........................................................................................................ 30

MCL 211.78 ......................................................................................................... 3, 36

MCL 21 l.78(1) .................................................................................................. 19, 32

MCL 211.78(3) ........................................................................................................ 25

MCL 21 l .78a(2) ........................................................................................................ 9

MCL 21 l.78g(l) ...................................................................................................... 10

MCL 21 l.78g(2) ...................................................................................................... 10

MCL 21 l.78g(3) ...................................................................................................... 14

MCL 211.78h(5) ...................................................................................................... 11

MCL 211.78i ........................................................................................................... 11

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MCL 21 l.78i(2) ....................................................................................................... 10

MCL 21 l .78i(3) ....................................................................................................... 10

MCL 21 l.78j ........................................................................................................... 11

MCL 211.781<( 4) ...................................................................................................... 36

MCL 211.781<(5) ...................................................................................................... 11

MCL 211.781<(6) ...................................................................................................... 22

MCL 211.78m ..................................................................................................... 4, 11

MCL 21 l.78m(8) ........................................................................................... 8, 12, 21

MCL 21 l.78m(l 1) ..................................................................................... : ............. 11

MCL 211.78q ........................................................................................................... 36

MCL 211.87b ....................................................................................................... 4, 10

MCL 211.87b(l) ................................................................................................ 10, 12

MCL 211.87f ....................................................................................................... 4, 10

MCL 211.87f(2) ................................................................................................. 10, 12

MCL 21 l.89a ........................................................................................................... 29

MCL 600.2529(1 )(a) ............................................................................................... 30

21 USC 881(a)(4) .................................................................................... 35

21 USC 88l(a)(7) ..................................................................................... 35

IRC § 6653(A), 26 UCS 6653(A) ........................................................................... 34

IRC § 6661, 26 USC 6661 ....................................................................................... 34

Other

Delinquent Property Taxes as an Impediment to Development in Michigan, Citizens Research Council of Michigan, Report 325, April 1999,

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https://crcmich.org/PUBLICAT/1990s/1999/i:pt325.pdf, accessed Apr 16, 2019 ...................................................................................................................... 30

Senate Joint Resolution E, approved as Ballot Proposal 2006-04, November 7, 2006 ...................................................................................................................... 17

September 2006 Ballot Proposal 06-4, An Overview, Senate Fiscal Agency, http://www. senate.michigan. gov /SF A/Pub Ii cations/BallotProps/Proposal 06-4. pdf, accessed Apr 16, 2019 ............................................................................... 18

Smith, Foreclosure of Real Property Tax Liens under Michigan's New Foreclosure Process, Mich Real Prop Rev, Summer 2002, 51 ........................... 13

Smith, "Property Tax Liens, Forfeitures, and Foreclosures" Chapter 6 in Real Property Taxes in Michigan (Gina M. Torielli, ed., ICLE, 2015 update), §6.3 .. 14

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STATEMENT OF QUESTION INVOLVED

Former owners of tax-foreclosed property have no property interest in the property once title has vested in the government following expiration of the final redemption period. Does the government's retention of excess sale proceeds from foreclosed property under MCL 211. 78m constitute a taking of private property for a public purpose without just compensation?

The trial court answered: No.

The Court of Appeals majority answered: No.

The Court of Appeals concurrence answered: No.

Plaintiffs-Appellants answer: Yes.

Defendants-Appellees answer: No.

Amicus Curiae MACT answers: No.

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STATEMENT OF JURISDICTION

Plaintiffs-Appellants Statement of Jurisdiction is complete and correct.

IDENTITY AND INTEREST OF AMICUS CURIAE

Amicus Curiae Michigan Association of County Treasurers ("MACT")

respectfully submits this brief in support of the Defendants-Appellees, Oakland

County and Oakland County Treasurer Andrew Meisner, and in support of

affirmation of the Court of Appeals decision holding Plaintiffs-Appellants have no

right to excess sale proceeds from the sale of tax-foreclosed property.

MACT, an association formed in 1934 and organized as a Michigan nonprofit

corporation, includes as members every county treasurer from the 83 counties in the

State of Michigan. County treasurers are constitutional officers elected in each

Michigan county and are charged with performing duties and exercising powers

provided by law under Const 1963, art 7, sec 4, which provides:

There shall be elected for four-year terms in each organized county a sheriff, a county clerk, a county treasurer, a register of deeds and a prosecuting attorney, whose duties and powers shall be provided by law. The board of supervisors in any county may combine the offices of county clerk and register of deeds in one office or separate the same at pleasure. [Emphasis added].

For many years, Michigan law has imposed on county treasurers a wide range

of functions relating to the collection of delinquent real property taxes. As Justice

Thomas M. Cooley stated in People ex rel Attorney Gen v Supervisors of St Clair

County, 30 Mich 388, 391 (1874):

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The county treasurer is made an indispensable officer in the [property tax] system . . . and duties too numerous to mention in this place are specifically imposed upon and to be performed by him officially, and without which it would be impracticable to enforce the collection of taxes.

In 1999, as the Legislature considered legislation significantly revising the tax

foreclosure process under the General Property Tax Act (the "GPTA"), 1893 PA 206,

as amended, MCL 211.1-.155, and the related duties of county treasurers, MACT was

actively involved in the drafting and amendment of that legislation, which became

1999 PA 123 ("Act 123"). Recognizing the importance of MACT's role after the

enactment of Act 123, the Legislature required a committee of county treasurers

appointed by MACT to provide a report to the legislative committees involved in the

law's passage discussing the law's successes, identifying areas for improvement, and

addressing the adequacy of fees. 1999 PA 123, § 78p(4), repealed by 2003 PA 263.

Recommendations offered by MACT were submitted to the Legislature and are

reflected in subsequent GPTA amendments, including 2003 PA 263.

MACT is keenly interested in this case because one of the primary duties of a

county treasurer is the collection of delinquent real property taxes under the GPTA.

In 75 of Michigan's 83 counties, the county has opted under section 78 of the GPTA,

MCL 211. 78, for the county treasurer to function as the foreclosing governmental

unit ("FGU") within the county on behalf of the State of Michigan. 1 FGUs have the

1 The State of Michigan remains the FGU for Branch, Clinton, Iosco, Keweenaw, Livingston, Luce, Mecosta, and Shiawassee Counties.

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responsibility to foreclose property for unpaid delinquent real property taxes, take

title to unredeemed properties, and to either transfer the property for public purpose

or sell the unredeemed parcels to generate revenue necessary to pay for unpaid

property taxes. County treasurers also act as agent for each of their counties'

delinquent tax revolving fund under GPTA sections 87b and 87f, MCL 211.87b, .87f.

The MACT believes that section 78m of the GPTA, MCL 211.78m, directing

disposition of foreclosed properties, is a critical component of Michigan's delinquent

property tax collection process. The disposition under section 78m(8) of "surplus"

proceeds from the sale of tax-foreclosed properties helps assure that each county

treasurer will have sufficient funds to administer the delinquent real property tax

collection process, repay any advances made from a delinquent tax revolving fund to

local taxing units, repay any delinquent tax anticipation notes issued, and avoid

chargebacks to local tax units for uncollected property taxes. The MACT also

believes this case could have significant impacts on counties throughout Michigan

and their ability to satisfy obligations to other taxing units relating to the

administration of delinquent tax revolving funds and to assure that taxes levied in

amounts sufficient to pay the expenses of government are collected in full. Given the

number of states with similar tax foreclosure processes, the Court's decision could

also have nationwide impacts.

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Auction results vary by county and year. In good economic times fewer parcels

are foreclosed and the bidding public has more money to spend, resulting in higher

excess sale proceeds. In poor economic times more parcels are foreclosed and the

bidding public has less money to spend, resulting in lower excess sale proceeds.

Some counties consistently lack sufficient receipts to make the delinquent tax

revolving fund whole, often resulting in chargebacks to local taxing units, while

others regularly have excess sale proceeds that exceed the amount necessary to make

the delinquent tax revolving fund whole, and some counties fluctuate between the

two. Over the decade 2008-2017, Wayne County's sales receipts, including any

excess proceeds on parcels sold each year, fell over $1 billion short of the delinquent

taxes, penalties, interest, and fees earlier paid out of its delinquent tax revolving fund

for the foreclosed properties. In 2016 Genesee County had excess sale proceeds of

$82,000 on 38 parcels. After applying the excess sale proceeds to reimburse the

delinquent tax revolving fund, the treasurer charged back a shortfall of over $5

million to the local units. In 201 7, Genesee County had excess sale proceeds of

$320,000 from 86 parcels, but still had to charge back over $3.6 million to local units

for uncollected taxes. But it's not just large, urban counties that have delinquent tax

revolving fund shortfalls after applying excess sale proceeds to reimburse the fund.

In 2016, Iron County received $40,000 in excess sale proceeds on the sale of 4

parcels, but incurred a net loss of $43,000 on the sale of all 43 foreclosed parcels

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offered at auction. In 2017, Iron County received $27,000 in excess sale proceeds on

the sale of 4 parcels, but incurred a net loss of $58,000 on the sale of 58 foreclosed

parcels offered at auction.

Similarly, in 2016 Hillsdale County received $20,000 in excess sale proceeds

on the sale of 8 parcels, but incurred a net loss of $20,000 on the sale of 25 foreclosed

parcels. And in 2017, Hillsdale County received $89,000 in excess sale proceeds on

the sale of 16 parcels, but incurred a net loss of $109,000 on the sale of 41 foreclosed

parcels.

Unfortunately, m most counties the foreclosure of just one abandoned

industrial or commercial property or other major blighted property will trigger costs

to the FGU that will offset any excess sale proceeds for many years.

Most critically, 72 county treasurers have already been sued in their individual

and official capacities, along with their respective county boards of commissioners, in

nine separate circuit court purported plaintiff class actions based on the county

treasurers having properly complied with the foreclosure and sale provisions of Act

123. 2 The State of Michigan is named in a separate action in the Court of Claims. The

Complaints in these actions expressly reference this Court's grant of leave to appeal

in this matter as the basis for the actions and seek not just excess sale proceeds, but

the difference between the fair market value of the foreclosed property and the

2 All counties except Macomb, Oakland, and Wayne and the counties where the State is the FGU.

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foreclosed taxes or, in the case of personal residence properties, 125% of the

properties 'fair market value. Any decision in this appeal that could be construed to

support such damage claims would eviscerate Michigan's delinquent real property tax

collection scheme and the ability of county treasurers to collect delinquent taxes.

For these reasons, MACT believes it can assist the Court through this Amicus

Brief in better understanding Michigan's process for the collection of delinquent real

property taxes, its procedures for the disposition of the proceeds of tax-foreclosed

property, and in the appropriate resolution of this appeal.

INTRODUCTION AND SUMMARY OF ARGUMENT

Taxes are no less than the lifeblood of government. It has been true in

Michigan since long before the 1893 adoption of the GPTA that if you do not pay

your real property taxes you will eventually lose your property through foreclosure of

the lien for the unpaid taxes. Although state law provides many avenues for relief

from the risk of losing one's property, the knowledge that failure to pay taxes results

in the loss of property provides a powerful, if not always successful, incentive to

timely pay property taxes and is a critical mechanism to protect the government's

ability to collect taxes.

The collection of taxes does not implicate the Takings Clauses of either the

State or Federal Constitutions.

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The retention of excess sale proceeds does not violate the Taking Clauses. The

United States Supreme Court so held in Nelson v City of New York, 352 US 103; 77 S

Ct 195; 1 LEd2d 171 (1956), as discussed in the Court of Appeals' concurring

decision. The highest courts of several states have reached the same conclusion. And

the retention of excess sale proceeds does not violate Const 1963, art 10, sec 2. This

Court has repeatedly held that once title vests in the government following expiration

of the final redemption period former owners have no property interest in the

foreclosed property. Simply put, foreclosure and sale under taxing authority does not

result in an unconstitutional taking without just compensation.

MCL 211. 78m(8) provides that proceeds from the auction of foreclosed

properties shall be first used to reimburse the county's delinquent tax revolving fund

for all taxes, interest, and fees advanced to the local units of government on all of the

foreclosed property, whether or not all of the property was sold, followed by other

prescribed uses. Plaintiffs ask that MCL 211. 78m(8) be held unconstitutional on the

basis that former owners of the foreclosed property have a constitutional right to

excess sale proceeds. Because former owners have no property interest in the

property once it is foreclosed they have no claim to any sale proceeds and the

government has not taken any property from them.

Plaintiff class action lawsuits have already been filed against 72 county

treasurers in their individual and official capacities predicated on this Court's grant of

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leave in this matter. These actions seek not just excess sale proceeds, but the

difference between the fair market value of the foreclosed property and the foreclosed

tax bill or, in the case of personal residence properties, 125% of the properties' fair

market value. Any decision in this appeal that could be construed to support such

damage claims would eviscerate Michigan's delinquent real property tax collection

scheme and the ability of county treasurers to collect delinquent taxes. These lawsuits

highlight the critical public policy implications of this appeal and strongly militate

against any finding of a taking by property tax foreclosure under the GPT A.

Finally, because the foreclosure and sale of tax delinquent property 1s a

remedial measure to provide incentive for the payment of taxes and not a punishment,

it is not an excessive penalty or fine.

MICHIGAN'S TAX FORECLOSURE PROCESS

1999 PA 123 significantly rewrote the provisions of the GPTA relating to the

foreclosure of delinquent property taxes, prescribing a streamlined process for

foreclosure of delinquent property taxes and converting the process from the sale of

tax liens to the sale of fee title to foreclosed property.

Ad valorem real property taxes become a lien on the property on July 1

(summer taxes) and December 1 (winter taxes) of the tax year. Taxes that remain

unpaid as of the end of February of the following year are turned over delinquent to

the county treasurer for collection on March 1. MCL 211. 78a(2).

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The county treasurer pays the local taxing units the amounts turned over

delinquent out of the county's delinquent tax revolving fund established under MCL

211.87b or .87f. The delinquent tax revolving fund allows the county treasurer to

provide local units necessary operating funds at the time local taxes are turned over

delinquent. The county treasurer then becomes responsible for collection of the

delinquent taxes. Taxes, interest, penalties, and fees subsequently collected by the

county treasurer are deposited into the delinquent tax revolving fund. However, if the

county treasurer is unable to collect taxes that it has paid to the local taxing units at

the time of settlement, the taxes remain the ultimate responsibility of the local units

and the county treasurer can charge the taxes back to the local units, although it is not

required to do so. MCL 211.87b(l) and .87f(2).

On March 1 of the year following delinquency, if the delinquent taxes remain

unpaid, the property forfeits to the county treasurer, starting a year-long foreclosure

process. MCL 211.78g(l). The GPTA contains detailed notice provisions FGUs must

follow prior to foreclosure:

• Recording of a Forfeiture Certificate with the county register of deeds, giving notice to persons who record their interest after the recording of the Forfeiture Certificate. MCL 211.78g(2).

• Certified mail notice to interest holders in each property whose interests is of record prior to the recording of the Forfeiture Certificate. MCL 211. 78i(2).

• Service of notice on occupants of each occupied parcel, whose interests may not be of record. MCL 211.78i(3).

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• Notice by publication in the name of the interest holders if the FGU is unable to determine an address reasonably calculated to apprise record interest holders of the forfeiture and pending administrative show cause hearing and judicial foreclosure hearing. MCL 211. 78i. As a practical matter, most FGUs publish the name of all interest holders in all parcels, rather than track the receipt of each certified mail notice for publication purposes.

The FGU must hold an administrative show cause hearing at least seven days

prior to the judicial foreclosure hearing, at which time interest holders can show

cause why the property should not be foreclosed. MCL 21 l.78j.

A circuit court hearing is held within 30 days prior to March 1 of the year

following the forfeiture. MCL 21 l.78h(5). A Judgment of Foreclosure is entered

following the hearing, which judgment is effective March 31. MCL 211. 78k( 5). Title

to parcels not redeemed by March 31 vests in the FGU. Id.

The GPTA provides for multiple post-foreclosure auction sales by the FGU in

the year of foreclosure. The auction process is set forth at MCL 211. 78m, which also

authorizes local units to acquire property before the auction for the "minimum bid",

defined as "all delinquent taxes, interest, penalties, and fees due on the property" plus

"the expenses of administering the sale, including all preparations for the sale." MCL

21 l.78m(l 1). Property must be offered at an initial auction for an amount equal to or

greater than the minimum bid. Property unsold in the first auction may then be

offered at a final sale for no minimum.

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Sale proceeds are statutorily dedicated to certain uses, in order of priority.

MCL 211.78m(8). The first priority is reimbursement of the county delinquent tax

revolving fund for all taxes, interest, and fees on all of the property, whether or not

all of the property was sold, followed by covering the cost of the sales, covering the

costs of foreclosures, and then other specified uses. If sale proceeds are insufficient to

reimburse the delinquent tax revolving fund for all payments made by the county

treasurer when taxes were turned over delinquent to the county treasurer for

collection, the county treasurer can charge the difference back to the local units,

making the delinquent tax revolving fund whole and imposing the costs of non­

collection on the local taxing authorities. MCL 211.87b(l) and .87f(2).

Under the current tax lien foreclosure process adopted in Act 123 the FGU

acquires and sells fee title to foreclosed property, a significant change from the prior

process. Under the process in place prior to the adoption of Act 123, fundamentally

unchanged since the 1893 adoption of PA 206, liens for delinquent taxes were offered

at tax lien sale in May of the third year of delinquency, followed by a one-year

redemption period. If not redeemed within the one-year period, the State Treasurer

deeded the property to the private lien purchaser for final foreclosure. This process

could extend for up to five years after the property was eligible for deeding (up to

nine years after the initial delinquency). If the lien was not purchased by a private lien

buyer, the property was conveyed to the State for final foreclosure, a process that

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normally extended up to three years after the sale (seven years after the initial

delinquency). The State could then sell the foreclosed property. Thus, under the

former process private entities had the first opportunity to acquire and foreclose tax

liens on properties that had potential value in excess of the tax liens, leaving to the

State those properties of minimal or negative value, i.e., blighted and contaminated

properties.

While the result is the same-if you don't pay your taxes you lose your

property-the former process privatized potential gains and socialized potential loses.

The current system socializes both gains and losses.

One of the major legislative goals in adopting Act 123 was addressing blight

by reducing the length of time abandoned properties were allowed to fester before

being foreclosed.

Because of the long period of time between the initial tax delinquency and the eventual foreclosure and resale of property [ under the former tax foreclosure process], abandoned properties tended to deteriorate or be vandalized and become eyesores, if not outright hazards, to surrounding neighborhoods. . .. The lengthy process and the limited insurability of the tax-reverted properties, coupled with the desire of many county treasurers to eliminate the annual tax sale, led the legislature to abandon the former foreclosure process in favor of the new, streamlined process in Act 123.

Smith, Foreclosure of Real Property Tax Liens under Michigan's New Foreclosure

Process, Mich Real Prop Rev, Summer 2002, 51, at 51-52.

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Under the former process, for parcels redeemed before the first Tuesday in

May of the year following the tax sale, the date at which a deed could be issued to the

tax lien buyer or the State, the amount necessary to redeem was the taxes due plus a

$10 tax sale fee, and interest at 1.25% per month back to the date the taxes were

returned delinquent. Under Act 123, when taxes are forfeited on March 1 a $175

administrative fee, recording costs ($35 each for the Forfeiture Certificate and

Redemption Certificate), plus costs of service of notice and publication are added to

the taxes due and interest at 1.5% per month back to the date the taxes were returned

delinquent. MCL 211.78g(3). Although the amounts vary somewhat from county to

county, the additional fees generally exceed $300 per parcel.

Although it is not particularly clear under the current foreclosure process since

all notices are sent prior to the foreclosure hearing, it was very clear under the former

process that giving notice of a pending tax foreclosure was not critical. The critical

aspect was that the delinquent taxpayers consistently waited until some point in the

foreclosure process, for many the last day, to pay their taxes. Smith, "Property Tax

Liens, Forfeitures, and Foreclosures" Chapter 6 in Real Property Taxes in Michigan

(Gina M. Torielli, ed., ICLE, 2015 update), §6.3, pp 237-238. And the majority of

parcels going late into the process did so year after year.

The same is true under the current process. Thousands of taxpayers across the

State pay their taxes on March 31-not March 29, not March 30-but March 31, the

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last day to pay. For them the process merely determines the last day to pay the taxes

to avoid loss of property. They are well aware of the tax debt, but willingly incur

additional foreclosure fees in order to avoid paying the taxes until the bitter end.

It is the recurring pattern of last minute redemptions that is problematic in

creating any collection enforcement strategy. It is only a small portion of delinquent

parcels that are actually foreclosed as a result of the lien for unpaid taxes. So any

process that imposes a massive and expensive administrative procedure on the vast

majority that will be redeemed anyway, is unnecessary, unduly expensive, and

unworkable.

STATEMENT OF FACTS AND PROCEEDINGS BELOW

Amicus Curiae MACT adopts the Statement of Facts and Proceedings Below

set forth in Defendants-Appellees Brief on Appeal.

STANDARD OF REVIEW

"This Court reviews de novo a question of constitutional law." People v

Kennedy, 502 Mich 206, 213; 917 NW2d 355 (2018). "[I]f the language of a

constitutional provision is plain, it is that meaning we give to it. . . . [I]f a

constitutional phrase is a technical legal term or a phrase of art in the law, the phrase

will be given the meaning that those sophisticated in the law understood at the time of

enactment unless it is clear from the constitutional language that some other meaning

was intended." Michigan Coalition of State Employee Unions v Civil Service Comm,

465 Mich 212,222,223; 634 NW2d 692 (2001). 15

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ARGUMENT

I. Tax Foreclosure and the Resulting Sale of Foreclosed Property does not Violate the Takings Clauses of the State or Federal Constitutions.

The Fifth Amendment states, in relevant part "nor shall private property be

taken for public use, without just compensation." It is made applicable to the states

through the Fourteenth Amendment.

Michigan Const 1963, art 10, sec 2 states in relevant part:

Private property shall not be taken for public use without just compensation therefore being first made or secured in a manner prescribed by law. If private property consisting of an individual's principal residence is taken for public use, the amount of compensation made and determined for that taking shall be not less than 125% of that property's fair market value, in addition to any other reimbursement allowed by law ....

"Public use" does not include the taking of private property for transfer to a private entity for the purpose of economic development or enhancement of tax revenues. Private property otherwise may be taken for reasons of public use as that term is understood on the effective date of the amendment to this constitution that added this paragraph.

A. The foreclosure of real property taxes and the resulting sale of foreclosed property does not implicate the Takings Clauses of the State or Federal Constitutions.

By their very nature, tax collections do not implicate Takings Clauses. In

County of Mobile v Kimball, 102 US 691, 703; 26 L Ed 238 (1881), discussing the

distinction between taxation and the taking of property, the Supreme Court stated:

"neither is taxation for a public purpose, however great, the taking of private property

for public use, in the sense of the Constitution".

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In Laborde v City of Gahanna, 561 F App'x 476 (CA 6, 2014), the 6th Circuit

held that taxpayers' claimed overpayment of municipal taxes was not a taking of

property because the Fifth Amendment Takings Clause is not implicated by the

collection of taxes, and the tax credits at issue were part and parcel of the municipal

income tax system.

The taxpayers brought an action in Ohio state court alleging that the city used a

form that resulted in overpayment of municipal income taxes and asserting takings

claims under the U.S. and Ohio Constitutions - specifically, that the residents'

overpayment of income taxes and the city's retention of same constituted a taking of

private property without just compensation under the Fifth Amendment. Defendants

removed the matter to federal court. The court emphasized that taxation is not a

taking of private property under the Constitution and that because the Fifth

Amendment Takings Clause is not implicated by the collection of taxes, it is not

implicated by a miscalculation of tax credits. So too, in this matter, statute mandates

the sale of foreclosed property and the application of sale proceeds.

Even the language of Const 1963, art 10, sec 2 is inconsistent with the concept

of a taking by tax foreclosure. Const 1963, art 10, sec 2 was rewritten by Senate Joint

Resolution E, approved as Ballot Proposal 2006-04, November 7, 2006, years after

1999 PA 123 became effective. Ballot Proposal 2006-04 asked Michigan voters to

decide whether to amend the State Constitution to provide that the taking of property

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by a governmental entity for transfer to a private entity for the purpose of economic

development or enhancement of tax revenue would not be considered to be for a

public purpose.

The following language appeared on the ballot:

A PROPOSED CONSTITUTIONAL AMENDMENT TO PROHIBIT GOVERNMENT FROM TAKING PROPERTY BY EMINENT DOMAIN FOR CERTAIN PRIVATE PURPOSES

The proposed constitutional amendment would:

• Prohibit government from taking private property for transfer to another private individual or business for purposes of economic development or increasing tax revenue.

• Provide that if an individual's principal residence is taken by government for public use, the individual must be paid at least 125% of property's fair market value.

• Require government that takes a private property to demonstrate that the taking is for a public use,· if taken to eliminate blight, require a higher standard of proof to demonstrate that the taking of that property is for a public use.

• Preserve existing rights of property owners.

Should this proposal be adopted?

September 2006 Ballot Proposal 06-4, An Overview, Senate Fiscal Agency,

http://www. senate .mi chigan. gov /SF A/Publications/Bal lotProps/Proposal 06-4. pdf,

accessed Apr 16, 2019.

The caption set forth in the ballot language informs the voting public and this

Court of the technical legal sense of the legal term "taking property" as being the

exercise of eminent domain.

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While art 10, sec 2 states that the taking of private property for transfer to other

private ownership with the intent of economic development or enhancement of tax

revenue is not a "public purpose" for eminent domain purposes, a major legislative

goal in the adoption of Act 123 was to do just that:

The legislature finds that there exists in this state a continuing need to strengthen and revitalize the economy of this state and its municipalities by encouraging the efficient and expeditious return to productive use of property returned for delinquent taxes. Therefore, the powers granted in this act relating to the return of property for delinquent taxes constitute the performance by this state or a political subdivision of this state of essential public purposes and functions.

MCL 211.78(1).

In addition, neither the language of art 10, sec 2, as amended, nor the ballot

language, gave any indication to the voters that FGUs would be required to pay 125o/o

of a property's fair market value any time the FGU foreclosed a principal residence

for nonpayment of taxes. Nor has MACT been able to find any other ballot analysis

that suggests such a possibility. This takes us back to the discussion of the technical

legal distinction between takings and taxation as set forth by the Supreme Court in

County of Mobile that "neither is taxation for a public purpose, however great, the

taking of private property for public use, in the sense of the Constitution". 102 US at

703. Nonetheless, 72 county treasurers have been sued, in their individual and official

capacities, in circuit court actions seeking damages in the amount of 125% of the fair

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market value of foreclosed principal residences, in actions predicated on this Court's

grant of leave to appeal in this matter.

Moreover, when Michigan's Constitution of 1963 was adopted, the term

"property" had a technical legal sense that excluded any interest of former owners in

tax foreclosed property once the foreclosure was complete, as discussed more fully in

argument B, immediately below.

Similarly, the Takings Clauses do not apply to forfeiture actions. In Bennis v

Michigan, 516 US 442; 116 S Ct 994; 134 L Ed 2d 68 (1996), a forfeiture case

involving an automobile, the innocent co-owner of the vehicle sought to recover her

interest in the vehicle. The Court rejected her claims, holding that the "government

may not be required to compensate an owner for property which it has lawfully

acquired under the exercise of governmental authority other than the power of

eminent domain .... " 516 US at 452. Here, plaintiffs had numerous opportunities to

protect their interests, but chose not to. Hence, plaintiffs are not even innocent

owners. The Court of Appeals majority properly held that the Takings Clauses are not

implicated by a forfeiture and foreclosure of delinquent taxes.

Since the Takings Clauses are not implicated by tax collection, and the sale of

foreclosed property is statutorily mandated as part of the foreclosure process ( absent a

unit of government exercising its right of first refusal) with excess sale proceeds

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dedicated to certain uses, the sale of the property and application of sale proceeds

under MCL 211. 78m(8) does not violate the Takings Clauses.

B. Because Plaintiffs-Appellants had no property interest under State law at the time of the sale of the foreclosed property, there was no taking of their property under either the Federal or State Constitutions.

Plaintiffs/ Appellants lost no property rights when the Oakland County

Treasurer sold the foreclosed parcels and retained all sale proceeds. Under long­

standing Michigan law, Plaintiffs/ Appellants had no property interest in the

properties once absolute title vested in the FGU. In a takings analysis, reliance is on

state law to define the existence of property rights. As explained in Lucas v South

Carolina Coastal Council, 505 US 1003, 1027; 112 S Ct 2886; 120 L Ed 2d 798

(1992):

Where the State seeks to sustain regulation that deprives land of all economically beneficial use, we think it may resist compensation only if the logically and antecedent inquiry into the nature of the owner's estate shows that the proscribed use interests were not part of his title to begin with. This accords, we think, with our "takings" jurisprudence, which has traditionally been guided by the understanding of our citizens regarding the content of, and the State's power over, the "bundle of rights" that they acquire when they obtain title to property.

Recognizing the "property interest" against which the loss of value is to be

determined is not constitutionally defined, the Court noted that clarity comes from

State law:

The answer to this difficult question may lie in how the owner's reasonable expectations have been shaped by the State's law of property

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- i.e., whether and to what degree the State's law has accorded legal recognition and protection to the particular interest in land with respect to which the takings claimant alleges a diminution in ( or elimination of) value.

Id. at 1017, n 7.

Michigan law is clear. Since at least the adoption of the GPTA over a century

ago, Michigan law has been that failure to pay taxes results in the loss of property

without recourse once the final redemption period has passed.

MCL 211. 78k( 6) makes clear that absolute title to foreclosed properties vests

in the FGU as to those properties that are not redeemed by March 31 following entry

of the Judgment of Foreclosure:

[F] ee simple title to property foreclosed by the judgment will vest absolutely in the foreclosing governmental unit ... without any further rights of redemption, if all forfeited delinquent taxes, interest, penalties, and fees are not paid on or before the March 31 immediately succeeding the entry of a judgment foreclosing the property under this section ....

* * * [T]heforeclosing governmental unit has good and marketable fee simple title to the property, if all forfeited delinquent taxes, interest, penalties, and fees are not paid on or before the March 31 immediately succeeding the entry of a judgment foreclosing the property under this section ....

(Emphasis added.) Thus, it is clear that the Oakland County Treasurer, as FGU, held

absolute title to the subject property prior to auction of the property. Under such

circumstances, plaintiffs and other interestholders had no interest in the properties at

the time of the sale and the realization of any proceeds.

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It has long been the law in Michigan that former owners retain no interest in

foreclosed property. Krench v Michigan, 277 Mich 168; 269 NW 131 (1936),

involved a parcel of land, title to which had vested absolutely in the State following

expiration of the final redemption period under the GPT A. The State sold the

property reserving to itself all mineral, coal, and oil and gas rights. Krench

subsequently acquired the property and, after oil was discovered on the property,

brought an action against the State arguing that the State could not reserve the

mineral rights when it sold the property. In discussing the distinction between the title

acquired by a tax lien purchaser under an Auditor General's tax deed and the title

acquired by one who purchases land from the State after absolute title has vested in

the State, this Court explained that a tax foreclosure divests former owners of all

interests, with a new chain of title starting with the State.

In 1937 PA 155, § 7 the Legislature authorized former owners of tax­

foreclosed land that had absolutely vested in the State to match the high bid at a

subsequent auction and reacquire the property. After the State advertised the sale of a

particular parcel, it withheld the parcel from sale. The former owner filed a petition

for a writ of mandamus to require the State to proceed with the land sale. This Court,

in James A Welch Co, Inc v State Land Office Board, 295 Mich 85, 93-94; 294 NW

377 (1940), held that the former owner had no greater interest in the land once

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absolute title vested in the State than any stranger to the title and, thus, had no right to

force a sale at which he could match the high bid.

Meltzer v State Land Office Board, 301 Mich 541; 3 NW2d 875 (1942), also

involved 193 7 PA 15 5. After absolute title to a foreclosed parcel had vested in the

State, former owners attempted to assign their right to match the high bid at auction

under Act 155 to plaintiffs. This Court found the deed and assignment invalid since

the former owners had no interest in the foreclosed property to assign.

The rule established by Krench, James A Welch Co, Inc, and Meltzer is clear.

That is, once absolute title has vested upon expiration of the final redemption rights

in a tax foreclosure proceeding, a new chain of title starts and former owners have no

greater interest in the property than mere strangers to title. Plaintiffs in this case had

no interest in the subject properties when they were sold by the county treasurer and,

accordingly, had no property interest in the sale proceeds. Thus, Const 1963, art 10,

sec 2, even if it recognizes greater rights than the Fifth Amendment, does not provide

any basis for a claim to excess sale proceeds.

Michigan courts have never recognized a right of landowners who lost property

through tax foreclosure to recover the value of the property in excess of the taxes due.

This is so regardless of whether the tax lien was sold at public auction and foreclosed

by a private purchaser, bid to the State for lack of a private bidder and foreclosed by

the State or, as now, the property is foreclosed in the name of the FGU. It was with

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this understanding of the law that 75 of the State's 83 counties opted under MCL

211. 78(3) to foreclose their own delinquent taxes.

Because Plaintiffs had no interest in the foreclosed property once absolute title

vested in the county treasurer, they had no interest in any sale proceeds and, in fact,

no right to force an auction of the property, and no property was taken from them

when the county treasurer applied the sale proceeds as required by MCL 21 l.78m(8).

C. The retention of excess sale proceeds does not violate the Fifth or Fourteenth Amendments.

The retention of excess sale proceeds does not violate the Fifth Amendment,

made applicable to the states by the Fourteenth Amendment. The United States

Supreme Court so held in Nelson v City of New York, 352 US 103; 77 S Ct 195; 1

LEd2d 171 (1956), holding that the city's retention of excess sale proceeds did not

violate the Fifth or Fourteenth Amendments in the absence of a statute requiring the

return of excess proceeds. In Nelson, a parcel assessed at $46,000 was lost for

$814.50 in water charges and the Court found no constitutional infirmity. The Court

stated, 352 US at 110:

What the City of New York has done is to foreclose real property for charges four years delinquent and, in the absence of timely action to redeem or to recovery any surplus, retain the property or the entire proceeds of its sale. We hold that nothing in the Federal Constitution prevents this where the record shows adequate steps were taken to notify the owners of the charges due and the foreclosure proceedings.

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The Court noted the hardship resulting from the state statute, stating it was for

the Legislature to address:

It is contended that this is a harsh statute. The New York Court of Appeals took cognizance of this claim and spoke of the "extreme hardships" resulting from the application of the statute in this case. But it held, as we must, that relief from the hardship imposed by a state statute is the responsibility of the state legislature, and not of the courts, unless some constitutional guarantee is infringed.

Nelson, 352 US at 110-111.

In City of Auburn v Mandarelli, 320 A2d 22 (Me, 1974), the Maine Supreme

Judicial Court found no constitutional infirmities in the retention of excess sale

proceeds. The same result was reached by the Massachusetts Supreme Judicial Court

in Kelly v City of Boston, 348 Mass 385; 204 NE2d 123 (1965), the New York Court

of Appeals in Sheehan v Suffolk County, 67 NY2d 52; 490 NE2d 523, 499 NYS2d

656, cert den MacKechnie v Sullivan County, 478 US 1006; 106 S Ct 3299; 92 L Ed

2d 713 (1986), and the Wisconsin Supreme Court in Oosterwyk v Milwaukee County,

31 Wis 2d 513; 143 NW2d 497, cert den 385 US 981; 87 S Ct 528; 17 L Ed 2d 442

(1966).

The Maine Court noted in City of Auburn that once the State acquires absolute

title, it has neither the duty nor the power to account to the former owner for excess

sale proceeds:

In the absence of contrary provision by statute or constitution, a municipality's title to property acquired under the tax-lien-mortgage­foreclosure statute is absolute, and the city or town has no power to part

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with, nor duty to account for, any surplus value on any theory of "equity and good conscience."

City of Auburn, 320 A2d at 32, citing Kelly, supra, and Oosterwyk, supra.

Plaintiffs make much of the fact that New York had a process in place to allow

former owners to receive excess sale proceeds, a possibility recognized by the

Supreme Court. But the Court describes how that process operated:

But we do not have here a statute which absolutely precludes an owner from obtaining the surplus proceeds of a judicial sale. In City of New York v Chapman Docks Co, l App Div 2d 895, 149 NYS2d 679 [1956], an owner filed a timely answer in a foreclosure proceeding, asserting his property had a value substantially exceeding the tax due. The Appellate Division construed§ Dl 7-12.0 of the statute to mean that, upon proof of this allegation, a separate sale should be directed so that the owner might receive the surplus.

(352 US at 110, emphasis added.) The plaintiff in Nelson committed the same error as

Plaintiffs here, he didn't attend the foreclosure hearing and exercise his rights to

protect his property interests. Nelson could have exercised his statutory rights in the

foreclosure proceedings. But he didn't and his loss of excess sale proceeds was not a

taking.

Had Plaintiffs attended the tax foreclosure hearing in this matter they could

have avoided the resulting foreclosure of their property; they could have challenged

the taxes, they could have sought an extension from the court, they could have paid

the taxes. But they did nothing. The statute in Nelson allowing a former owner to

receive excess sale proceeds was not one that protected a former owner after

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foreclosure. Rather, it was part of the foreclosure proceeding. And having failed to

exercise his statutory rights, Nelson was without remedy and there was no

constitutional violation. The same is true of Plaintiffs in this matter.

The United States Supreme Court and the highest courts of several states have

concluded that retaining sale proceeds after foreclosure of delinquent taxes is not a

taking absent a state statute entitling the former owner to a share of sale proceeds.

Michigan has no such statute and the Court of Appeals properly found no basis for a

claim to any excess proceeds.

II. Public Policy Strongly Supports Affirming the Court of Appeals Decision.

This appeal raises an issue of first impression in this Court.3 Public policy

strongly supports affirming the Court of Appeals decision, especially in light of the

Plaintiffs' class actions brought against 72 county treasurers and the State of

Michigan predicated on this Court's grant of leave to appeal in this matter. And there

are strong policy reasons for allowing the Legislature, not the courts, to address any

3 In First National Bank of Chicago v Dep't of Treasury, 485 Mich 977; 774 NW2d 912 (2009), this Court remanded the matter to the Court of Claims to address plaintiffs claim it was entitled to excess sale proceeds. The Court of Claims ruled in Treasury's favor and no appeal was taken. More recently, Michigan's foreclosure and sale procedures were upheld against a takings challenge in the United States District Court for the Western District of Michigan in a case very similar to the instant matter. Wayside Church v Van Buren County, No. 1 :14-cv-1274, Opinion and Order entered Nov 15, 2015. However, the 6th Circuit vacated the district court decision and directed dismissal of the Complaint based on lack of federal court jurisdiction. Wayside Church v Van Buren County, 847 F3d 812 (CA 6), cert den_ US_; 138 S Ct 380; 199 L Ed 2d 278 (2017). A similar matter in the Eastern District was dismissed for lack of federal court jurisdiction. Freed v Thomas, ED Mich No. 17-cv-13519, Opinion and Order entered Nov 7, 2018, app pending No. 18-2312 (CA 6).

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concerns, not the least of which is the fact that the Legislature can address those

concerns without destroying the tax collection process.

A. Holding that a tax foreclosure constitutes a taking of property without just compensation could eliminate any incentive for property owners to pay delinquent real property taxes.

Although this Appeal involves only a claim for excess sale proceeds, 72 county

treasurers have been sued in Plaintiffs' class actions predicated on this Appeal,

actions seeking the difference between the fair market value of the foreclosed

property and the foreclosed taxes or, in the case of personal residence properties,

125% of the properties' fair market value less taxes owed. MACT is deeply

concerned about any decision from this Court that could be interpreted as allowing

any damages resulting from a proper foreclosure under the GPTA.

If former owners are entitled to the difference between the fair market value of

the foreclosed property and the foreclosed taxes or, in the case of personal residence

properties 125% of the properties' fair market value less taxes owed, the resulting

damages are such that FGUs would lose money on essentially every foreclosure.

Foreclosure would cease to be a viable means of collecting taxes and, thus, would

cease to be an incentive to pay taxes. And without foreclosure as an incentive, there is

no means of getting recalcitrant property owners to pay their taxes. Notably, prior to

the adoption of 2003 PA 246 amending MCL 211.89a to require the City of Detroit to

tum over its delinquent taxes to the county for collection, many Detroit property

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owners paid their county taxes, but not their city taxes, because the City of Detroit

did not routinely foreclose liens for delinquent taxes. Delinquent Property Taxes as

an Impediment to Development in Michigan, Citizens Research Council of Michigan,

Report 325, April 1999, p 6, https://crcmich.org/PUBLICAT/1990s/1999/rpt325.pdf

last accessed Apr 16, 2019. Elimination of foreclosure as a collection option would

allow this to occur state-wide.

As for other collection options that may be available if foreclosure is no longer

an option, even Plaintiffs recognize that criminal enforcement of the tax laws is

inappropriate and probably unconstitutional. Appellants' Brief on Appeal, p 25, n 9.

Likewise, individual in personam lawsuits against property owners under MCL

211.47(2) are also unworkable. First, this would involve the filing of over 100,000

individual cases each year,4 each of which would require a filing fee of $150. MCL

600.2529(l)(a). Second, each lawsuit would entail more attorney time and expense

than the current foreclosure process. Third, in personam actions increase the

difficulty and expense of notice/service of process. All of these increased costs would

be passed on to the taxpayers. Most troubling, these additional costs would serve no

purpose, since most delinquent taxpayers are well aware of their tax debt, but simply

choose to pay their taxes at the last minute. Increasing the costs of the process

provides no relief, only additional costs and increased likelihood that the taxpayers

4 170,000 separate parcels were forfeited statewide in 2017. Over 200,000 parcels were forfeited statewide each year from 2011 to 2015.

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will be unable to pay the taxes. And most of the increased costs would fall on those

taxpayers in the poorest position to afford them, lower income property owners,

because these taxpayers are the most likely to incur the additional expenses resulting

from delaying payment of taxes. Unfortunately, one cannot legislate financial

literacy.

Moreover, collecting judgments for the taxes due in in personam actions will

also increase costs, and could result in seizure of income tax refunds and perhaps

various forms of garnishment. And since the action is in personam, the taxpayer no

longer has the option to just let the property go for taxes. Individual collection actions

are incredibly inefficient, expensive, and time-consuming. In addition, being a

defendant in an in personam tax collection action could negatively impact the

taxpayer's credit rating.

Similarly, seizing and selling personal property of delinquent taxpayers under

MCL 211.4 7 ( 1) to collect real property taxes is also entirely unworkable on a state­

wide basis. Although such a collection method may be workable with respect to a

single or small number of taxpayers, trying to identify and locate personal property

for collection for over 100,000 delinquent parcels each year would be an

administrative nightmare of untold proportions. And, as with in personam actions, it

is entirely unnecessary, since the vast majority of delinquent taxpayers will pay their

taxes, but for many, not until the last minute.

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If foreclosure, criminal enforcement, in personam actions, and seizure and sale

of personal property are all unavailing, MACT is unclear what, if any, incentives

could make taxpayers pay property taxes. And lack of foreclosure as a means of

collection could also have other, unintended consequences.

B. Eliminating foreclosure as a means of enforcing property tax laws would reduce government's ability to address blight.

Blight elimination was a primary legislative goal in the 1999 adoption of Act

123 and the 2003 adoption of the Land Bank Fast Track Act, 2003 PA 258, MCL

124.751 et seq. MCL 211.78(1), 124.752. Much to their dismay, FGUs routinely

acquire contaminated or blighted properties. Although FGUs don't necessarily

appreciate being stuck with these properties, at least FGUs generally try to clean up

the properties or address the blight. Without a tax foreclosure such properties will

remain a blight and a danger to the neighborhood for a significantly longer period of

time.

Foreclosed substandard housing is a particular problem, because it is very

common and often located within residential neighborhoods. Foreclosed substandard

housing is often purchased at auction by speculators or "slum" landlords who slap on

a coat of paint and rent it out, without paying any taxes, simply collecting rent for

three years until the now even more blighted property again cycles through the

foreclosure process. To address this problem, some cities or counties will acquire

substandard or marginal quality foreclosed parcels through their right of first refusal

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prior to the first auction for a public purpose (blight reduction) and transfer the

parcels to a land bank for improvement and ultimate sale. Cf Rental Properties

Owners Ass 'n of Kent Co v Kent Co Treasurer, 308 Mich App 498; 866 NW2d 817

(2014), lv den 498 Mich 853; 865 NW2d 19 (2015) (potential bidders cannot

challenge a county's decision to acquire property under its right of first refusal for

transfer to a land bank for redevelopment for restoring blighted neighborhoods). But

the loss of foreclosure as an enforcement mechanism would eliminate the opportunity

for local units to address contamination and blight in a more timely fashion.

C. The Legislature can create the remedy Plaintiffs-Appellants seek without destroying Michigan's tax foreclosure process.

Although plaintiffs seek only excess sale proceeds in this appeal, a holding that

a tax foreclosure constitutes a taking for public purpose without just compensation

seriously jeopardizes foreclosure as a means of enforcing property tax laws. But the

Michigan Legislature could create a remedy without that problem, as other state

legislatures have done. 5 While a judicial finding of an unconstitutional taking opens

up the possibility of crippling damage claims, a legislative solution would not. Thus,

the Legislature could, if it chose to, fashion some type of remedy to reduce the harsh

result of a foreclosure. The United States Supreme Court recognized the propriety of

a legislative solution in Nelson, supra.

5 Examples of such states are identified in Plaintiffs-Appellants' Brief on Appeal, p 14, n 7.

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III. Because Foreclosure and Sale of Tax Delinquent Property is Intended as an Incentive for Property Owners to Pay Delinquent Taxes there is No Reason to Remand this Matter for Consideration of Eighth Amendment Arguments.

Plaintiffs ask this Court to remand this matter for consideration of an Eighth

Amendment argument that failing to refund excess sale proceeds constitutes an

excessive fine. However, because forfeiture and foreclosure of tax liens is a necessary

incentive for collection of delinquent property taxes and not intended to be punitive,

there is no reason to address Eighth Amendments concerns.

Austin v United States, 509 US 602; 113 S Ct 2801; 125 L Ed 2d 488 (1993),

held that the Eighth Amendment's applicability to in rem forfeiture actions turned

upon whether the forfeiture was intended, at least in part, to punish.

However, federal courts have distinguished the type of fine (forfeiture) at issue

in Austin from fines assessed pursuant to the government's interest in raising revenue.

For example, in Little v Commissioner, 106 F3d 1445 (CA 9, 1997), the 9th Circuit

considered a taxpayer's challenge to penalties assessed by the Internal Revenue

Service pursuant to IRC §§ 6653(A) and 6661. Taxpayer asserted that, in accordance

with Austin, such penalties amounted to "punishment", triggering the Eighth

Amendment's prohibition against excessive fines. The court disagreed and stated that,

"[t]he additions to tax at issue in the present case are purely revenue raising because

they serve only to deter noncompliance with the tax laws by imposing a financial risk

on those who fail to do so." 106 F3d at 1454. As such, the court held that the taxpayer

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"failed to establish that the additions to tax in question here are penal sanctions

unrelated to the government's fundamental interest in raising revenue." Id. In support

of this holding, the court cited Helvering v Mitchell, 303 US 391; 58 S Ct 630; 82 L

Ed 917 (1938), where the Supreme Court held that a 50% addition to a tax did not

constitute a criminal penalty. The Helvering court explained:

The remedial character of sanctions imposing additions to a tax has been made clear by this Court in passing upon similar legislation. They are provided primarily as a safeguard for the protection of the revenue and to reimburse the Government for the heavy expense of investigation and the loss resulting from the taxpayer's fraud.

In McNichols v Commissioner, 13 F3d 432 (CA 1, 1993), the First Circuit

rejected the proposition that additions to tax violated the Eighth Amendment even

more emphatically than the court in Little. The court characterized the extension of

the holding in Austin from forfeiture cases to civil tax penalties as a "giant leap" and

explained that "Austin does not directly or impliedly suggest that either its holding or

statements to the effect that a forfeiture can be an excessive fine under the Eighth

Amendment are or should be applicable to any actions other than forfeitures under 21

USC§§ 881(a)(4) and (a)(7)." McNichols, 13 F3d at 434. The court further noted that

there was "an insurmountable wall of tax cases" affirming that government's right to

assess such tax penalties. Id.

Recently, the court in Dewees v United States, 272 F Supp 3d 96 (DDC, 2017),

followed the same legal thread as was outlined by the aforementioned cases and also

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provided a succinct and persuasive overview of the applicability ( or lack thereof) of

the Eighth Amendment to tax penalties.

The foreclosure provisions of the GPT A are not punitive, especially in light of

the various options available to property owners to avoid foreclosure. The stated

purpose of the GPTA is to further the "continuing need to strengthen and revitalize

the economy of this state and its municipalities by encouraging the efficient and

expeditious return to productive use of property returned for delinquent taxes." MCL

211. 78. It should also be noted that the FGU and the local taxing authorities bear the

risk that the foreclosure on the property will not satisfy the outstanding tax liability.

This further supports the position that the sole purpose of the GPT A is to satisfy the

outstanding property tax delinquency not punish the party holding a legal interest in

the property.

Michigan law provides numerous forms of relief for property taxpayers. MCL

211. 78u provides that, "[t]he principal residence of persons who, in the judgment of

the supervisor and board of review, by reason of poverty, are unable to contribute

toward the public charges is eligible for exemption in whole or in part from taxation

under this Act." MCL 206.520 provides low income taxpayers an income tax credit

for property taxes paid on a principal residence, even if the taxpayer has no income

tax liability. MCL 211.78k(4) authorizes a circuit court to withhold a property from

foreclosure due to financial hardship. And MCL 21 l.78q authorizes FGUs to enter

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into delinquent property tax installment payment plans or tax foreclosure avoidance

agreements under certain circumstances.

The ultimate possibility of loss of property serves solely as a safeguard for the

protection of the revenue from property taxes. Federal Courts have consistently

recognized measures designed to protect tax revenues as purely remedial. Because

Michigan's real property tax foreclosure process is remedial in nature and not

punitive, it does not run afoul of the Eighth Amendment and remand is unnecessary.

CONCLUSION AND RELIEF REQUESTED

Michigan's statutory process for the collection and foreclosure of delinquent

property taxes is constitutional. The forfeiture and foreclosure of tax-delinquent

property is separate and distinct from the taking of private property for a public

purpose contemplated by the Takings Clauses of the State and Federal Constitutions.

Even if the Takings Clauses are applicable, state law provides that former owners

retain no interest in tax-foreclosed real property and have no interest in any proceeds

realized by the government through the sale of such property.

Taxes are no less than the lifeblood of government. The possible loss of

property provides a strong incentive for timely, voluntary payment of property taxes.

That some people inevitably will not avail themselves of the myriad opportunities to

avoid foreclosure does not mean that such a system is unconstitutional nor that such

incentive should be removed-in fact the opposite is true.

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Ultimately, Michigan's tax foreclosure process, though perhaps imperfect, does

not offend the Constitution. To the extent that it may be improved, such task falls not

to the judiciary but to the Michigan Legislature in accordance with the State's

fundamental interest in raising revenue.

For these reasons, Amicus Curiae MACT asks that this Court affirm the

decision of the Court of Appeals.

Dated: April 24, 2019

Dated: April 24, 2019

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Respectfully submitted,

Isl Charles A. Lawler Charles A. Lawler (P65164) 212 East Cesar E. Chavez Avenue Lansing, Michigan 48906

(517) 318-3100 clawler@clarkhill.com Attorneys for Amicus Curiae MACT

/s/ Kevin T. Smith Kevin T. Srnith (P32825) 3617 N M52 Owosso, Michigan 48867 (989) 723-2008 smithkl 955@charter.net

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