The Michigan Supreme Court in Rafaeli, LLC v. Oakland County firmly established that Michigan could not sell a person’s home in a foreclosure sale and then keep all the proceeds from that sale above what the person owed. The Michigan Supreme Court heard arguments over how far back its Rafaeli decision could be applied in Schafer v. Kent County. The Court held Rafaeli retroactively applied to claims which were not yet final as of July 17, 2020.
The case arose when Kent County refused to refund Plaintiffs the difference between their money owed and the foreclosure sale price of their properties, arguing they do not have a right to these funds because their foreclosure sales occurred before Rafaeli was decided. We disagreed and filed an amicus curiae (“friend of the court”) brief in support of Plaintiffs in December of last year. There, we argued how important Rafaeli was to property owners and it should be given full retroactive effect as the decision represented a continuation of the right of property owners to receive their surplus proceeds from a tax title foreclosure sale.
During oral arguments, the Court grappled with whether Rafaeli should be given full or limited retroactivity. Attorney Matthew Nelson, representing Kent County and Kent County Treasurer, urged the court to give the decision a limited retroactive effect and only apply Rafaeli to cases 1) where the parties raised and preserved, or 2) were filed and pending when the decision was rendered. Justice Cavanagh was concerned with the Supreme Court’s language in Tyler v. Hennepin County, requiring full retroactivity for tax title foreclosures, and the equity of precluding Michigan citizens’ claims for these types of takings in state court. Attorney Nelson argued even if Michigan barred some of its citizens from pursuing a claim in state court by not giving full retroactivity to Rafaeli, these individuals could still go to federal court. Throughout his argument, Attorney Nelson warned of supposed, disastrous economic consequences that could befall counties if Rafaeli was given full retroactive effect. However, when pressed by Justice Bernstein on rebuttal what the specific effects would be for Kent County, Attorney Nelson admitted Kent County was not the “poster child” for the most severe consequences and would pay these individuals their funds owed out of its reserves.
Christina Martin of Pacific Legal Foundation represented Plaintiffs Matthew Schafer and Lilly Hucklebury. Attorney Martin stressed that the Michigan Supreme Court and United States Supreme Court both held the government must pay just compensation when it takes a property for a public use. She urged that this case should be given full retroactive effect because the principle that a property owner can seek excess proceeds owed to him is a longstanding one, as the Michigan Supreme Court, U.S. Supreme Court, and Sixth Circuit Court of Appeals have all explained. Attorney Martin explained that justice “requires the county [to] pay just compensation, [and] the sky will not fall by asking the counties to pay what they’ve taken.”
On July 29, 2024, the Michigan Supreme Court issued a ruling in this case. The Court held Rafaeli applied retroactively to claims not yet final as of July 17, 2020. It explained “[a]s Rafaeli demonstrated, few rights and legal principles have greater legal, historical, and constitutional pedigrees than the protection against uncompensated takings, which applies fully to the taking of surplus proceeds following a tax-foreclosure sale.” Because of the weighty importance of property rights, to not apply Rafaeli retrospectively “would not only be ineffective, but actively counterproductive for the proper administration of justice.”
This Michigan Supreme Court’s holding that Rafaeli is retroactive is a great win for Michigan taxpayers!