Local governments can’t keep extra cash in tax foreclosures

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The Michigan Hall of Justice, which houses the state Supreme Court and Court of Claims. (File)

DETROIT (AP) — Local governments in Michigan can’t keep surplus cash from the sale of tax-foreclosed properties, the Michigan Supreme Court said Friday in a groundbreaking decision that could lead to waves of payments to former owners across the state.

State law allowed county treasurers to keep money left over after overdue taxes finally were paid from a property sale. The Supreme Court said the practice is illegal under the Michigan Constitution.

“The purpose of taxation is to assess and collect taxes owed, not appropriate property in excess of what is owed,” Justice Brian Zahra said in an opinion joined by five other justices.

Justice David Viviano agreed with the result but not with much of the legal reasoning.

Because of an oversight, Uri Rafaeli owed $8.41 in taxes on a rental property in Southfield. The bill grew to $285 with penalties and interest. Oakland County sold the house for $24,500 but kept the balance, although the sale greatly exceeded the amount of overdue taxes.

Andre Ohanessian owed about $6,000. Oakland County sold his 2.7 acres for $82,000 and kept the windfall. There are similar stories in other Michigan counties.

During arguments last fall, the county’s attorney, John Bursch, said more than $2 billion could be at stake if the court declared the law unconstitutional.