Michigan mom seeks just compensation in home foreclosure

Four years after the Michigan Supreme Court unanimously ruled that counties can’t keep excess profits from tax foreclosures, one Michigan mom is fighting for $102,636 in home equity seized by Manistee County.

Chelsea Koetter, a single mother of two boys, fell behind on her property taxes in 2018 and underpaid what she owed in 2021. The tax bill grew to $3,863 with interest, penalties, and fees. Koetter later attempted to pay the overdue bill but missed the deadline by eight days. Manistee County foreclosed on the home. The county auctioned Koetter’s home for $106,500 in August 2021, keeping all the profit — $102,636 more than Koetter owed in taxes, penalties, interest and fees. 

Koetter argues that this violates a 2020 Michigan Supreme Court decision that it is unconstitutional for counties to keep excess equity after foreclosing on a tax-delinquent home.

That ruling followed Oakland County’s seizure of Uri Rafaeli’s property in 2014 over an initial tax debt of $8.41, which rose to $285.81 after interest, penalties and fees. In another decision from late July, the state Supreme Court ruled that counties must return excess profits seized from foreclosed homeowners, going back to 2020.

Nevertheless, a circuit court judge rejected Koetter’s motion to recover the surplus proceeds. The Michigan Court of Appeals also ruled against her. 

“The government can sell property to collect unpaid taxes, but it has a duty to pay just compensation when it takes more than what is owed,” Christina Martin, senior attorney at Pacific Legal Foundation, said in a statement. “But Michigan uses an unusual and complicated process that is designed to fail. It is a calculated attempt by the government to avoid Supreme Court precedent so that it can unconstitutionally take property without compensation.”

Rachel Nelson, the Manistee County treasurer, did not respond to a request for comment.

“It seems like the counties really just don’t want to pay,” Martin told CapCon in a phone interview. “But the Michigan Supreme Court has now twice unanimously said they have to. On top of that, the U.S. Supreme Court has unanimously said this is unconstitutional. So the counties need to stop fighting people and just start paying what they are owed.”