Lake, Osceola county treasurers named in lawsuit

Lori Leudeman

BIG RAPIDS — Treasurers in Lake and Osceola counties, among many others in Michigan, are named in a class-action lawsuit filed in late December regarding unpaid property tax debts and how local governments collect what is owed to them.

Attorney Philip Ellison, who represents Ronald Maynard, of Newaygo County, claims in the suit that while it’s fair for governments to foreclose on a property if its owner cannot pay taxes, treasurers should not be allowed to keep more than what is owed, if the property ends up selling for a higher amount after it’s seized.

“If they’re able to make more than what the tax debt is, they need to make a process available for the property owner to get that money back,” Ellison, who is based in Saginaw County, said Friday. “It’s identical to what happens when you don’t pay a mortgage. If the bank forecloses because you don’t pay a mortgage and they sell your house for more than what the note is, the mortgage company has to refund the difference.”

Osceola County Treasurer Lori Leudeman, one of 10 county treasurers named in the Maynard case, said she and others are simply following the letter of the law as written.

“Foreclosure is not something we want to do. We’re not trying to make a big surplus. If I had a zero list of foreclosures, I’d be happy,” Leudeman said. “We’re just doing what we’re supposed to be doing.”

Leudeman said it’s a standard practice for county treasurers throughout the state to seize and sell property when taxes are owed, after multiple attempts are made to collect on the debt. While some parcels are considered worthless or near worthless, others generate larger profits — sometimes even in excess of the taxes owed.

Instead of refunding the “surplus equity,” the county keeps it, and uses the profits in its general fund.

“There are also properties we foreclose on that we are not able to sell, or we sell them for less than the taxes are owed,” Leudeman said. “The excess money is used to balance that out. When taxes go delinquent, the county still has to pay the townships and the schools. If we didn’t have the money to cover that, we would have to get it back.”

In the case of Maynard, who lives in Bitely, $7,000 was owed in taxes, plus penalties and other costs. In 2016, Newaygo County Treasurer Holly Moon foreclosed on the property, selling it to a land speculator at a tax auction for $70,000. The next year, the property was sold to a third party for $150,000 — near the estimated fair market value of $148,000.

According to the lawsuit, Newaygo County did not return the $63,000 difference between the tax auction price and the total tax delinquency. Maynard is seeking damages, as well as an order declaring the foreclosure process unconstitutional.

“There’s basically two ways to look at this, we assert,” Ellison said. Our first and main claim is called a takings claim. If the government takes something that doesn’t belong to the government, it’s a taking and under the constitution, they have to pay just compensation. … Our argument is money above the taxes that are owed is a taking. What some of the counties have come back and said is that it’s not a taking — by you not paying your taxes, you forfeited your property to the government.

“If the judge agrees that is what happened, our second argument comes into play — an excessive fines clause violation. Governments cannot impose excessive fines, and courts have ruled forfeiture is a type of fine. Our argument is when you take 10, 20, 30, in some cases 90 times the value of the debt that is imposed, that itself is an excessive fine and requires the government not to be allowed to keep the money,” he continued.

Leudeman said that situations like Maynard’s are rare in Osceola and other northern Michigan counties.

“In Osceola County, we only foreclosed on 38 parcels last year. Five or less had houses on them — and they weren’t necessarily livable houses. We foreclose on a lot of vacant properties that people don’t want. In other words, it’s rare we have a lot of excess. We don’t make a profit on every property we sell,” she said.

Leudeman added: “We work really hard to not foreclose on people. The law allows us to work on extensions with people, it allows for payment plans, there are many notices that go out to people who are facing foreclosure. It’s a three-year process.”

Lake County chief deputy treasurer Kellie Allen referred most questions to the county’s legal counsel, but said in a brief statement, “In Lake County, 99 percent of taxpayers pay their property taxes.”

Ellison said 59 of Michigan’s 83 counties, divided separately based on geography, were facing lawsuits as of Friday. Generally speaking, those counties that weren’t sued work under a system in which the state government handles the foreclosure process for them.

That’s why Mecosta County wasn’t included in the class-action suit, county treasurer Sherry Earnest said — because Michigan seizes Mecosta County properties with unpaid taxes, sells them and keeps the excess of the sale.

Ellison said he planned to soon file suit against the state in regard to those “opt-out” counties.

“I don’t know what (Mecosta’s) reasons were for not becoming the foreclosing governmental unit, but I think it was a wise decision on their part, because they have made the state conduct an unconstitutional activity, rather than they themselves. So they have no liability now,” he said.

The Maynard case will be heard in Newaygo County at 2:15 p.m. on Jan. 29.

Ellison said he would eventually like to see counties develop a system in which excesses from foreclosure sales are refunded to the debtor. If — as Leudeman asserts is often the case — the property does not sell for as much as the taxes that are owed, Ellison said the counties should sue to be made whole.

“We’re not asking the courts to preclude governments from collecting taxes. But they should not be allowed to collect beyond what is owed,” Ellison said. “Just because someone owns a more valuable property doesn’t mean the government can look at the bottom line and tell you it all balances out. We don’t rob Peter to pay Paul in our system of government.”

avatar

Posted by Tim Rath

Tim is the Pioneer's associate editor. He also coordinates the Family & Friends, Religion and Veterans pages. He can be reached by phone at (231) 592-8386 or by e-mail at trath@pioneergroup.com.

Leave a Reply