Background
Chippewa County foreclosed on properties formerly owned by Victoria L. Sheffield and the original additional plaintiffs for unpaid property taxes, then sold the properties for more than the outstanding taxes and related charges. At the time of the foreclosures, Michigan law permitted foreclosing governmental units to retain those excess proceeds.
After the Michigan Supreme Court held in Rafaeli v Oakland County that government retention of tax-sale proceeds exceeding the tax debt and collection costs violates the Michigan Constitution’s Takings Clause, the Legislature enacted MCL 211.78t. That statute establishes the exclusive state-law process for former owners to claim remaining proceeds. Sheffield and the other plaintiffs instead filed a class action asserting tort and state and federal constitutional claims. The circuit court dismissed those claims with prejudice under MCR 2.116(C)(8) because the plaintiffs had not first used the statutory process.
While the appeal was pending, Sheffield timely pursued the MCL 211.78t procedure and recovered the statutory remaining proceeds. She did not receive attorney fees, costs, interest, or the statute’s 5% sales commission. The other plaintiffs were dismissed from the appeal, leaving Sheffield as the sole appellant.
The Court’s Holding
The Court of Appeals held that MCL 211.78t applies to tax-foreclosure sales occurring before Rafaeli and provides the exclusive state-law mechanism for obtaining remaining proceeds. Under the Michigan Supreme Court’s decisions in Schafer and Hathon, a properly notified claimant must first use that statutory process before challenging its adequacy or pursuing additional tort and constitutional relief.
The circuit court therefore properly granted summary disposition because the plaintiffs had not completed the statutory process before filing their separate claims. But dismissal with prejudice was erroneous. Because Sheffield has since completed the MCL 211.78t proceedings, she may use any available procedural mechanism to pursue her remaining claims concerning interest, costs, attorney fees, and the 5% sales commission.
The court affirmed the grant of summary disposition, reversed the portion making the dismissal with prejudice, and remanded for entry of an order dismissing the claims without prejudice. It expressly declined to decide the merits or validity of Sheffield’s remaining constitutional and other claims or her claimed additional damages.
Key Takeaways
- MCL 211.78t is the exclusive state-law mechanism for recovering remaining tax-foreclosure proceeds, including for sales that occurred before Rafaeli.
- A properly notified former owner must first complete the statutory recovery process before pursuing separate tort or constitutional claims concerning the proceeds or the adequacy of the remedy.
- Failure to use the statutory process initially supported dismissal, but not dismissal with prejudice; Sheffield may pursue available procedures for claims not resolved by her statutory recovery.
Why It Matters
The decision reinforces that former Michigan property owners generally cannot bypass MCL 211.78t by filing an independent action for tax-foreclosure surplus proceeds. That exhaustion-like sequencing requirement applies even when the foreclosure and sale predated Rafaeli and the statutory remedy.
At the same time, the ruling preserves the possibility of further litigation after the statutory process is completed. The court left unresolved whether Sheffield can recover interest, attorney fees, costs, or the 5% commission withheld under the statute.