Here’s the latest in an issue we’ve been following for a long time.
In Jackson v. Southfield Neighborhood Revitalization Initiative, No. 166320 (July 16, 2025), the Michigan Supreme Court re-confirmed its ruling in Rafaeli v. Oakland County, that the government “keeping the change” after liquidating property to satisfy a delinquent tax debt is a taking, rejecting the claim that transferring the property to a non-governmental organization does not relieve the government of its obligation to provide compensation.
There’s a lot going on here, and we’re not wading into too much detail both because it is one of ours, but also because this one is Michigan-specific. But we will say that this case is a good example of a court viewing things pragmatically, and calling out government action that seeks to work around a constitutional ruling.
Here’s the heart of the court’s holding:
In this case, the operative question is whether a taking occurs when property was not offered for sale at a public auction because a governmental unit other than the state purchased the property from the FGU for a minimum bid through the right-of-first-refusal process outlined in former MCL 211.78m. The Court of Appeals concluded that these property transfers constituted a taking under the same principles outlined by this Court in Rafaeli. Jackson II, 348 Mich App at 360-362. We agree that this scenario constitutes a taking under the Michigan Constitution.
Slip op. at 9.
The “FGU” referred to is the “foreclosing governmental unit” (or as we like to call it, “the government”). Recall that in Rafaeli held that a FGU retaining the monies over the amount owed in taxes after a public foreclosure sale is a taking.
But to avoid the obligation to provide compensation, the state authorized a scheme by which the FGU didn’t put the seized properties up for public auction, but rather allowed the city to exercise the statutory right to pay the minimum bid, after which the properties would be conveyed from the city to a nongovernmental organization. This procedure avoided the FGU being liable for a taking because it never receives, let alone retains, any surplus funds. End of the constitutional problem, right?
Not to the court, which called this out: “[d]espite this distinction, the same principles that underpinned this Court’s decision in Rafaeli holds true in the scenario presented by the case before us.” As the court noted:
This remains true even when a property is not offered for sale at a public auction; the only distinction is how we determine whether the government collected more than it was owed “to satisfy the unpaid delinquent real-property taxes as well as any interest, penalties, and fees associated with the foreclosure and sale of plaintiffs’ properties.” Id. Where a public foreclosure sale occurs, the government commits a taking only if it retains any surplus proceeds received from the sale of the property. Id. at 483-484; see also Yono v Ingham Co, ___ Mich ___, ___; ___ NW3d ___ (July 16, 2025) (Docket No. 166791); slip op at 6-8. But where, as here, there are no sales by public auction, the government commits a taking if the value of the property retained exceeds what the government was owed. The government cannot evade long-established methods of disposing of foreclosed properties through public sale and simply keep highly valuable property for itself, avoiding paying any compensation to homeowners. Such a practice would allow governments to circumvent Rafaeli and render its constitutional holding inert for property owners affected by similar takings.
Slip op. at 12.
Here’s a novel idea: instead of trying to keep the change by avoiding what the constitution requires, how about paying up and funding neighborhood revitalization initiatives from the public fisc, rather than on the backs of those unfortunate property owners who couldn’t keep up?
Jackson v. Southfield Neighborhood Revitalization Initiative, No. 166320 (Mich. July 16, 2025)