CADILLAC — If your house is foreclosed on by the county, you could lose all of the money you’ve put into it.
You could be just months away from paying off your mortgage, but if you’ve fallen years behind on your property taxes, the county can seize the property over the unpaid taxes and then sell the property for more than you owed the county.
The county could profit; meantime, you’d lose your equity.
Seem unfair? That’s been the crux of an ongoing debate about how to handle foreclosed-upon properties. Legislative attempts to preserve some of that equity for former property owners have failed. Counties have pushed against the idea, arguing against being forced to act as real estate agents for property owners that could have sold their properties rather than face foreclosure.
Now the courts have stepped in.
Recently, the Michigan Supreme Court ruled in favor of former property owners, calling county profits over and above the foreclosed upon amount an “unconstitutional taking,” The Detroit News reported on July 17.
It’s too early to say what impact the ruling could have on local counties.
“The dust hasn’t settled yet as far as the court’s decision is concerned, so it is premature to make any hard assessment on the immediate or long range future of foreclosure proceedings,” said Lori Cox, Missaukee County Treasurer.
The Cadillac News spoke to Cox and other local county treasurers, all of whom said they’re still waiting for details to figure out their next steps.
But the treasurers painted a more detailed picture of foreclosures in rural northern Michigan counties.
Information from county treasurers suggests it’s rare for counties to substantially profit from tax sales.
“In our county, the goal is for the total sale to be enough to pay the three years of delinquent taxes that are owing,” said Lori Leudeman, Osceola County treasurer. “There are always parcels that either sell for much less than the taxes owed, or do not sell at all.”
Property owners in the local counties typically owe a few thousand dollars or less when their property is foreclosed.
“The amount can be anywhere from $500 to $4,000,” said Wexford County Treasurer Kristi Nottingham. “The amount depends on what the tax was for that year, based on the taxable value and city/township millage rate.”
In Missaukee County, the total owed (tax plus interest and fees) on six properties foreclosed upon this month was $15, 928.30 compared to a total assessed value of $91,000, according to a document provided to the Cadillac News.
Local government and schools can lose money on foreclosures.
“If the total sale doesn’t cover those three years of taxes, we have to ‘charge back’ not only the county, but the schools, townships (operating and roads), ISDs, fire departments and libraries,” Leudeman said. That’s because when property owners are late paying their taxes, the county sends the money they should have received to the local entities that get a share of property taxes. To do so, counties either use money from delinquent tax funds or borrow the money to pay the local units of government. If the property owner never pays their taxes and the county forecloses on the property and the property then doesn’t sell at auction for what’s owed, the county has to try to get the money back from local units, like townships and schools.
It’s somewhat rare, Leudeman said.
“In my 12 years as Treasurer, I have only had to do this one year,” she explained.
It’s not clear what price is typically paid at auction.
“It depends on the property itself, so it can fluctuate quite a bit,” Nottingham said. “Many times it is only sold at the minimum bid.”
The minimum bid is typically the total amount of taxes and fees owed on the property.
The purchasers are usually not getting luxury homes at rock-bottom prices, either.
Far from it.
“We have very few commercial properties,” said Nottingham of Wexford County. “Most properties we foreclose on are residential. A lot of them are vacant homes/properties.”
A quick perusal of the residential properties listed on tax-sale.info (where Missaukee County and Osceola County list foreclosed properties for auction) showed most of the properties were aged and run-down, some clearly uninhabitable with holes in the roof.
One property on Dickerson Road in Lake City was still occupied; the former owners hung up when the Cadillac News asked for comment.
If the recent Supreme Court decision means counties will have to reimburse property owners for any profits above delinquent taxes and fees, it’s not clear what the impact on county budgets would be.
Leudeman said there were too many unanswered questions to say right now.
“The opinion did not address many of the concerns of the County Treasurers,” Leudeman noted.
But Nottingham sounded more optimistic.
“The excess proceeds go into a restricted fund which is not part of our general budget,” Nottingham said. “It will have no effect in our budgeting process. It is used for the cost of the foreclosure proceedings including mailing, publication, personal service and outside contractors.”
Leudeman said treasurers are trying their best.
“I feel that we, as County treasurers, have done our best, fairly and responsibly, to implement the tax foreclosure law enacted by the legislature,” she wrote in an email. “Our goal is to foreclose on as few properties as possible, and to keep taxpayers in their homes. I am sure that we will do the same to comply with any modifications to the law once they are clear.”
Wexford County foreclosed on 26 properties on Monday (the deadline was extended due to COVID-19). Those properties have unpaid properties dating to 2017. The county foreclosed on the same number of properties last year, which Nottingham described as typical.
Osceola County foreclosed on 33 properties this year and 32 last year, Leudeman said.