Background
Chippewa County foreclosed on properties formerly owned by Victoria L. Sheffield and other plaintiffs for unpaid property taxes and sold them for more than the taxes and related charges owed. Under the version of Michigan’s General Property Tax Act then in effect, the county retained the excess proceeds.
After the Michigan Supreme Court held in Rafaeli v. Oakland County that retaining such proceeds violates the Michigan Constitution’s Takings Clause, the plaintiffs filed a putative class action asserting tort and state and federal constitutional claims. The circuit court dismissed those claims with prejudice because the plaintiffs had not first used the statutory recovery procedure in MCL 211.78t. During the appeal, Sheffield—the sole remaining appellant—completed that process and received the statutory remaining proceeds, but not the claimed interest, attorney fees, costs, or withheld 5% sales commission.
The Court’s Holding
The Court of Appeals held that the circuit court properly dismissed the claims under MCR 2.116(C)(8). Michigan Supreme Court precedent establishes that MCL 211.78t applies retroactively to pre-Rafaeli foreclosure sales and provides the exclusive state-law mechanism for obtaining remaining proceeds. Claimants must complete that statutory process before challenging its adequacy or pursuing additional tort and constitutional relief.
The dismissal, however, should have been without prejudice because the circuit court did not decide the substantive merits of Sheffield’s claims. Now that she has completed the statutory process, Sheffield may use any available procedural mechanism to pursue claims for additional relief, including interest, costs, attorney fees, and the 5% sales commission. The appellate court expressed no view on whether those claims are valid.
Key Takeaways
- Owners whose properties were sold before Rafaeli must first use MCL 211.78t to recover tax-sale surplus proceeds.
- Claims challenging the adequacy of that statutory remedy are premature until the claimant completes the statutory process.
- A dismissal based solely on failure to use MCL 211.78t must be without prejudice when the merits of the claimant’s additional tort and constitutional claims have not been adjudicated.
Why It Matters
The decision confirms that Michigan’s statutory surplus-proceeds process governs pre-Rafaeli as well as post-Rafaeli tax foreclosures. Former owners generally cannot bypass that process by initially filing independent tort or constitutional claims.
At the same time, completing the statutory process does not necessarily foreclose claims that the remedy remains constitutionally inadequate. Questions concerning interest, attorney fees, costs, and the statutory 5% sales commission remain open for later litigation.