Counties sued over foreclosure ‘profits’

ALPENA — Alpena, Alcona, Montmorency and Presque Isle counties are among nearly 80 counties in Michigan being sued for how they collect funds from the sale of property foreclosures.

The lawsuits allege that county treasurers and their respective counties across the state are using the Michigan Property Tax Act to profit from selling foreclosed property.

State law currently allows county treasurers to foreclose on a property and sell it at auction when property taxes, interest and penalties remain unpaid for three years.

The lawsuits argue that, by selling property at a “highly reduced, non-fair market price,” treasurers destroy its equity. Counties then keep the “excess sale proceeds” — or the difference between the sale price and the total delinquency owed — which the lawsuits claim is unconstitutional. Backers of the suits cite the “takings clause” in the Fifth Amendment, which says private property shall not be taken for public use without just compensation.

“We’re asking the judge to order that anybody that’s been foreclosed on, where the government got a profit or excess value of the deal, to refund that money back to the previous homeowner,” said Philip Ellison, an attorney with the firm Outside Legal Counsel.

“My position is, why reward bad behavior?” Presque Isle County Treasurer Bridget LaLonde said at a recent meeting of that county’s Board of Commissioners. “The rest of us pay our taxes and we certainly don’t stop paying taxes in hope that we would get a kickback if we don’t. We would lose the property.”

LaLonde declined to comment further following the meeting because the county had not been formally served.

Outside Legal Counsel is representing Stephen and Robin Morris in a lawsuit against Alpena, Alcona, Montmorency and several other counties. The firm is also representing Bryan and Gail Zettel in a suit against Presque Isle County and several other counties. The suits are filed on behalf of the plaintiffs and all residents in those counties.

The Morrises lived in Roscommon County at the time of the foreclosure. They owed approximately $3,161 in delinquent taxes, interest and fees on their property. Roscommon County sold it at a tax auction for $27,500.

Similarly, the Zettels owed approximately $8,600 in delinquent taxes, interest and fees on their East Jordan home when it was foreclosed. Charlevoix County sold the home at a tax auction for $90,000.

The cases against those counties are among several class-action lawsuits that will be heard by circuit court judges around the state. There are 83 counties in Michigan.

Ellison said the suits go one step further than the Fifth Amendment to argue that, even if the government could take the excess proceeds, that would be a violation of the excessive fines clauses of the Eighth Amendment and of the state constitution, which say the government cannot impose excessive fines.

He said both the Michigan and U.S. supreme courts have upheld that a forfeiture is a type of fine.

The cases could potentially impact thousands of residents in Michigan who have had their houses foreclosed, he said.

Ellis said in an email to The News that he believes the statute of limitations for the case would be six years, but it could be three years, depending on how the courts interpret some technical language regarding the statute. He said the judges’ ruling could be retroactive, meaning people who have had past foreclosures could benefit.

“For my clients, I hope to get them a refund, obviously,” he said. “For myself, I hope this will stop county treasurers from basically taking advantage of a loophole or a technicality in the law that allows them to vacuum up huge amounts of equity and people’s hard work.”

Ellison said the counties have been sued and that they are in the process of being served. Treasurers in Alpena, Alcona, Montmorency and Presque Isle counties confirmed this week they have yet to be served the paperwork, but are aware the litigation is in the works.

Alpena County Treasurer Kim Ludwig said the issue has been on her radar for awhile.

“If something actually comes of it, then we’ll move forward,” she said.

Calls to the Michigan Association of County Treasurers were not immediately returned.

Once the counties have been served, the case involving Alpena, Alcona, Montmorency, Ogema, Oscoda, Roscommon, Clare and Gladwin counties will be heard in Roscommon County Circuit Court.

The portion of the case including Presque Isle, Cheboygan, Leelanau, Grand Traverse, Antrim, Charlevoix, Emmet, Otsego, Crawford and Kalkaska counties will be heard in Charlevoix County Circuit Court.

Crystal Nelson can be reached at 989-358-5687 or cnelson@thealpenanews.com.