Background
Chippewa County foreclosed on properties owned by Victoria L. Sheffield and the original coplaintiffs for unpaid property taxes between 2016 and 2018. The properties were sold for more than the outstanding taxes and associated charges, and the county retained the excess proceeds under the version of Michigan’s General Property Tax Act then in effect.
After the Michigan Supreme Court held in Rafaeli v. Oakland County that governmental retention of such surplus proceeds violates the Michigan Constitution’s Takings Clause, the plaintiffs filed a putative class action asserting state tort and state and federal constitutional claims. The circuit court dismissed the claims with prejudice because the plaintiffs had not first used the exclusive recovery procedure established by MCL 211.78t. While the appeal was pending, Sheffield—the sole remaining appellant—completed that statutory process and received her remaining proceeds, but not the requested interest, attorney fees, costs, or the five-percent sales commission withheld under the statute.
The Court’s Holding
The Court of Appeals held that the circuit court properly dismissed the claims under MCR 2.116(C)(8) because Michigan Supreme Court precedent requires owners whose properties were sold before Rafaeli to first use MCL 211.78t to recover remaining proceeds. The statutory process is the exclusive state-law mechanism for obtaining those proceeds, and challenges to the adequacy or application of that process are premature until the claimant completes it.
The dismissal, however, should have been without prejudice because the circuit court did not decide the merits of Sheffield’s tort or constitutional claims. Having now completed the statutory process, Sheffield may use any available procedural mechanism to pursue claims for interest, costs, attorney fees, and the withheld five-percent sales commission. The Court expressed no view on the validity of those claims, affirmed summary disposition, reversed only the with-prejudice aspect of the ruling, and remanded for entry of a dismissal without prejudice.
Key Takeaways
- Owners seeking surplus proceeds from pre-Rafaeli Michigan tax-foreclosure sales must first use the procedure in MCL 211.78t.
- Claims challenging whether that procedure provides constitutionally adequate compensation are premature until the statutory process is completed.
- Dismissal for failure to complete the statutory process must be without prejudice when the merits of additional tort or constitutional claims have not been adjudicated.
Why It Matters
The decision preserves MCL 211.78t as the required first step for recovering surplus tax-foreclosure proceeds, including for sales predating Rafaeli. At the same time, it leaves former owners free to litigate whether the statutory recovery is constitutionally incomplete after they exhaust that process.
The court specifically left unresolved whether just compensation may include interest, attorney fees, costs, or the five-percent sales commission deducted under the statute. Those issues therefore remain available for consideration in a procedurally proper case.