A federal court approved a settlement last month in a case involving foreclosed properties in Michigan, but an appeal will likely delay reimbursements into late next year, the Michigan Association of County Treasurers said Tuesday in a news release.

The Michigan Supreme Court ruled Monday that its 2020 decision stopping local governments from keeping cash windfalls from the sale of foreclosed homes can be applied retroactively.

A class action settlement is in place affecting 44 counties who will return surplus proceeds to those foreclosed due to unpaid property taxes between 2013 and 2020. The payments, however, remain on hold.

“Treasurers are anxious to send settlement checks to those entitled to their surplus auction funds,” said Andrew Kmetz, Mason County treasurer and president of the MACT. “However, the settlement has been appealed to the Sixth Circuit.”

The appeal was filed July 6 by attorneys representing objectors to the class action, said attorney Ted Seitz of Dykema, who represents the treasurers’ group. “So, funds are being held hostage by the class settlement objectors,” he said.

The settlement would benefit people who formerly owned property, had their property foreclosed due to unpaid taxes, and whose property was sold at tax auction for more than what was needed to cover the unpaid taxes and penalties.

Dickinson County Board approved the proposed class action settlement in December 2022 after consulting with its Michigan Municipal Risk Management Authority counsel. At that time, Controller Brian Bousley said about $350,000 was at stake if every possible claim went forward. In light of the ongoing legal action, none of the money has been committed for other purposes, he said.

State law allows Michigan counties to foreclose on properties when taxes haven’t been paid for three years. After the deadline, counties may sell off properties to recoup unpaid taxes, along with additional interest, costs and fees.

However, they can’t keep profits, the Michigan Supreme Court stated in its 2020 ruling, which is now retroactive as well.

Before the 2020 ruling, state law had allowed counties to keep the money left over from a foreclosure sale. After covering expenses, the money was often dedicated to maintaining or improving blighted properties.

The decision approving the class action settlement was issued by U.S. District Court of the Western District of Michigan Judge Paul L. Maloney. It arises from Wayside Church v. Van Buren County, a 2014 federal lawsuit where three property owners failed to pay property taxes and lost their property to tax foreclosure. All three properties were sold at auction for more than taxes owed.

The property owners sued for those excess amounts, saying the county should be required to pay just compensation under the Fifth Amendment.

Treasurers often used surplus funds to offset losses on other properties that either failed to sell or sold for less than the unpaid taxes, according to MACT. However, the group says, most properties sold at foreclosure auctions do not result in surplus funds.

In late 2020, the Michigan Supreme Court ruled that Michigan laws were unconstitutional in Rafaeli, LLC v Oakland County, leaving some counties facing losses that ranged from $500,000 to more than $120 million. The Wayside Church v. Van Buren County settlement was the result of lengthy and challenging negotiations overseen by the Mediation Office of the U.S. Court of Appeals for the Sixth Circuit, MACT said.

“The settlement is a fair and just outcome for former owners and counties,” said Kmetz. “We appreciate the work of the plaintiffs’ attorneys, class members, defense counsel and the judicial system for arriving at this resolution. We look forward to resolving the appeal and the expeditious return of excess proceeds to former owners.”

To obtain the benefit of the settlement, former property owners filed claims during the spring and summer of 2023, MACT said. The settlement, Judge Maloney noted, had a claim rate that “is quite high, and the relief provided for the class is substantial.”

The class action period is Jan. 1, 2013, through Dec. 31, 2020. Because of the appeal, a final payout to taxpayers is not expected until late 2025, according to MACT.

Jim Anderson can be reached at 906-774-3500 ext. 226 or janderson@ironmountaindailynews.com.