Background
Between 2013 and 2020, the plaintiffs lost real property through tax-delinquency foreclosure sales conducted by Kalamazoo County. At that time, Michigan law permitted the county to retain any proceeds from the foreclosure sale in excess of the delinquent taxes, interest, penalties, and fees. In Rafaeli v. Oakland County, 505 Mich 429 (2020), the Michigan Supreme Court held that government retention of surplus proceeds beyond amounts owed violated the Takings Clause of the Michigan Constitution.
Following Rafaeli, the Legislature enacted 2020 Public Act 255 and 2020 Public Act 256, codified as MCL 211.78t, creating an exclusive statutory mechanism for former property owners to recover surplus proceeds. The statute requires claimants to submit notices of intention, notify the foreclosing governmental unit, and file motions in circuit court following specific procedures and deadlines.
Rather than following MCL 211.78t, the plaintiffs filed a complaint in March 2024 in circuit court seeking recovery of surplus proceeds (totaling between $11,150 and $91,500 per plaintiff) and asserting eleven federal and state constitutional claims, including inverse condemnation, Fifth Amendment takings violations, Fourteenth Amendment due process violations, and Eighth Amendment excessive fines claims. The county moved to dismiss, and the trial court granted the motion, dismissing the complaint without prejudice because plaintiffs had not first complied with MCL 211.78t procedures.
The Court’s Holding
The Michigan Court of Appeals affirmed the dismissal. The court held that MCL 211.78t provides the exclusive state law mechanism for persons seeking to recover surplus proceeds from tax foreclosure sales and that plaintiffs must follow this statutory procedure before pursuing constitutional remedies. The statute explicitly designates itself as “the exclusive mechanism for a claimant to claim and receive any applicable remaining proceeds under the law of this state.” Because the Legislature provided this exclusive procedure, plaintiffs forfeited their right to recover by failing to comply with it.
The court rejected plaintiffs’ argument that their constitutional rights vested before MCL 211.78t was enacted. The Michigan Supreme Court had already determined in Schafer v. Kent County, 515 Mich 1 (2024) that both Rafaeli and MCL 211.78t apply retroactively to foreclosures occurring before the statute’s enactment. Consequently, former owners of properties foreclosed between 2013 and 2020 must still follow the MCL 211.78t procedures. Plaintiffs’ counsel acknowledged during oral argument that the plaintiffs had now filed notices of intention under MCL 211.78t, confirming the viability of that remedy.
The court also rejected plaintiffs’ contention that federal law preempts the state statutory scheme. Citing federal precedent including Tyler v. Hennepin County, 598 U.S. 631 (2023), Hall v. Meisner, 51 F.3d 185 (6th Cir. 2022), and Howard v. Macomb County, 133 F.4th 566 (6th Cir. 2025), the court found that MCL 211.78t comports with both the federal and state takings clauses and does not unlawfully condition federal constitutional claims. The procedures provide former owners with reasonable notice and an opportunity to recover surplus proceeds without immunizing government officials from the obligation to pay what is owed.
Key Takeaways
- Former property owners in Michigan who lost property through tax-delinquency foreclosure before the Rafaeli decision may still pursue recovery of surplus proceeds, but only through the exclusive MCL 211.78t statutory mechanism.
- Failure to comply with MCL 211.78t procedures—including timely notice to the foreclosing governmental unit and circuit court filings—results in forfeiture of the right to recover, even if a party has valid constitutional claims.
- MCL 211.78t applies retroactively to foreclosure sales occurring before its enactment, and the statute’s procedures satisfy both state takings clause requirements and federal Fifth Amendment protections.
- Dismissal for failure to exhaust this administrative remedy does not violate federal constitutional protections or impermissibly condition federal claims on state procedure.
Why It Matters
This decision clarifies that notwithstanding the constitutional violations established in Rafaeli, Michigan’s legislative response through MCL 211.78t provides the only permissible pathway for recovery. While the court recognized that plaintiffs have constitutionally protected rights to surplus proceeds, it emphasized that the Legislature’s authority to establish the mechanism for vindicating those rights—including administrative procedures and timelines—is constitutionally sound. This reinforces the principle that even strong constitutional claims may be subject to reasonable procedural requirements established by statute.
The retroactive application of MCL 211.78t means that property owners whose foreclosures occurred years before the statute’s enactment cannot sidestep its procedures by filing suit directly. The decision also has implications for federal takings claims: the Sixth Circuit’s recognition in Howard that adequate procedures prevent a taking from occurring means that complying jurisdictions cannot face constitutional liability if they provide former owners a genuine opportunity to recover. For practitioners representing former property owners, the message is clear—MCL 211.78t is mandatory, and failure to follow it is fatal to any parallel state or federal constitutional remedy.