MIDLAND, Mich. — In a significant victory for property owners across the state, the Michigan Court of Appeals ended a legal loophole that allowed local governments to take home equity from individuals whose homes are seized. In a decision today in Louis Jackson v. Southfield Neighborhood Revitalization, the court rejected the city’s argument that because property was sold to another government entity for the price of the tax debt, there was no surplus equity from the sale to return to the former property owner. The case was sent back to the Oakland Circuit Court to calculate the amount owed to the individual property owners from the sale of their homes.

This decision could positively impact similar home equity theft lawsuits, including Perez v. Wayne County, brought by the Pacific Legal Foundation and the Mackinac Center Legal Foundation.

After Erica Perez and her father Romualdo unknowingly underpaid their 2014 taxes by $144, Wayne County tacked on another $359 in interest, penalties and fees, and foreclosed on their property. The county then sold it for $108,000 and kept every cent. The lawsuit has been in front of the Wayne Circuit Court since 2019 but has a status hearing next week that will determine next steps.

Home equity theft has become an all-too-common practice by local governments. In July 2020, the Michigan Supreme Court ruled in Rafaeli LLC v. Oakland County that counties cannot keep the surplus home equity and profit off the seizure of homes. Oakland County pocketed nearly $25,000 over an $8.41 tax debt owed on Rafaeli’s rental property.

The U.S. Supreme Court affirmed these protections in its decision in Tyler v. Hennepin County. In that case, Hennepin County sold 94-year-old Geraldine Tyler’s condo after she accrued a $2,300 tax debt. After adding fees, penalties, and interest, Tyler ended up owing $15,000 to the county. The county sold her home for $40,000 and kept the remaining $25,000 for its own use.

“This ruling sends a powerful message about the sanctity of property rights and gives hope to property owners across the state who are still fighting government takings,” said Derk Wilcox, senior attorney with the Mackinac Center. “Today’s decision prohibits governments from selling property to themselves to avoid paying property owners the remaining value of their homes.”

Read the full opinion here.

Learn more about Perez v. Wayne County here.