A Southfield retiree who bought a home in 2011 for $60,000 and turned it into a rental property. He thought it was a good investment until the state seized it over an $8 tax bill.
Uri Rafaeli bought the 3-bedroom, 1,500-square-foot home in Southfield in 2011 for $60,000. He fixed it up and then started to rent it out to tenants.
Uri Rafaeli, 83, had his Michigan property seized, put it up for auction and sold after a mistake in calculating his property taxes left Rafaeli’s account delinquent by $8.41. (Courtesy of the Pacific Legal Foundation)
What the retired engineer didn't know, is that just two-and-a-half years later Oakland County seized his property and put up for auction. It sold for only $24,500.
The reason for the county taking the home was a mistake in calculating property taxes. He was delinquent $8.41.
Now Rafaeli's rental home is owned by someone else and the income he made from renting it is gone.
His tax issues started in 2012 when he learned he underpaid his property taxes by $496. In the meantime, he had continued making the following property tax payment on time, and in January 2013 he attempted to settle the outstanding debt he had with Oakland County.
But due to a mistake he made in calculating his interest, he was short of paying off his balance by $8.41. The bill eventually grew to $285 with penalties and interest.
The Oakland County Treasurer’s Office attempted to collect the debt a number of times - sending mailed notifications to both the property in Southfield and to an address it had for Rafaeli in Michigan. But Rafaeli had by that time moved out of state, and his tenants in Southfield did not forward the notices.
In 2014, the property was seized and put up for auction, but Rafaeli had no idea. He continued to pay property taxes even after it was seized and only became aware that something was amiss when he stopped receiving rent payments from his tenants - who no longer resided at the seized home.
These efforts, however, proved fruitless as his case - in which his lawyers argued that his due process rights had been violated - was first dismissed by the Oakland County Court and later the Michigan Court of Appeals ruled against him, citing the state’s civil forfeiture laws.
It was here that Martin and the Pacific Legal Foundation stepped in to help - petitioning the Michigan Supreme Court. The state’s high court granted Rafaeli’s case a review after Martin argued that his constitutional rights were violated under the Takings Clause.
The Oakland County Treasurer’s Office declined Fox News’ request for comment, but in a written brief to the court, the county’s lawyers argue that “by failing to pay back taxes and failing to redeem the property before auction, the taxpayer no longer possesses an interest for the government to ‘take.’” The brief also noted that Rafaeli was given “numerous notice provisions and opportunities” to pay his balance.
Rafaeli’s stunning case, which is at the heart of a legal battle currently being considered before Michigan’s Supreme Court, is an extreme example. Yet it is hardly unique: more than 100,000 homeowners in the state have fallen victim to an aggressive property tax law that legislators in Lansing passed two decades ago. Similar statutes have been passed in more than a dozen other states.
Act 123 of 1999 was meant to speed up the redevelopment of blighted properties amid Michigan’s economic woes, but critics of the statute say it has allowed county officials to act as debt collectors and line their coffers by retaining the excess revenue made by selling houses with unpaid property taxes -- no matter how paltry the debt.
“When the government takes property to settle a debt, they have to give the extra money they make back to you,” Christina Martin, a lawyer with the Pacific Legal Foundation who is representing Rafaeli in his case against Oakland County, told Fox News. “It doesn’t matter what law Michigan passes, they have the constitutional obligation to pay back any more than they are owed.”
Even if the county paid Rafaeli what it made, $24, 491.59, it would be far short of what the retiree paid for the house in 2011 - and much less than it's worth today as property values in Southfield have also skyrocketed. The home is valued at about $120,000 today.
William Horton and John Bursch, the county’s attorneys, contested Martin’s assertion that the county’s actions violated the Takings Clause - saying in the brief that “tax collections are not the taking of private property for public use in the constitutional sense” and that Martin’s argument is similar to ones previously shot down by courts across the country.
“This is hardly the first time that a delinquent taxpayer has brought a claim to recover the ‘surplus’ proceeds in a tax sale,” the lawyers said.
In court last week, Bursch argued that a ruling in favor of Rafaeli would set a precedent that could ultimately bankrupt Michigan counties by forcing local governments to compensate all homeowners in similar situations. He estimated it would cost around $2 billion.
Michigan Supreme Court Justice Richard Bernstein did not appear to agree with the county lawyer’s assessment of the situation.
"The interpretation you gave was very dramatic: that this is going to end schools, and the counties are going to crumble, and society is just going to implode," Bernstein said. "You have a situation where a person owed $8 and lost their house. I mean, how is that equitable?"
Rafaeli's case will be decided sometime before the end of July 2020.
Martin hopes that a ruling in favor of Rafaeli will not just be a victory for the 83-year-old retiree, but will set a precedent in Michigan and across the nation -- possibly leading to a ruling by the U.S. Supreme Court on a similar case in the future.
There are 14 other states in the U.S. that have statutes on the books similar to Michigan, and five of those states - Arizona, Colorado, Illinois, Massachusetts and Nebraska - allow private investors to make money off the sale of foreclosed homes.
“The government should not be making a windfall ... when collecting unpaid taxes,” she said. “This is a practice that needs to come to an end.”
FOX News contributed to this report.