Guy Gordon (00:02.452)
Hello and welcome to the Facts Matter podcast courtesy of the Citizens Research Council of Michigan. Of course, our motto is that facts should drive policy, not politics. And that is why we bring these very impartial podcasts to you so that you can be more informed and informed from a source that doesn’t lean one way or another. Today’s topic, it is perhaps one of the most tragic financial errors any homeowner could make.

Deferring your property taxes, maybe you have a financial crisis and it seems like a good idea at the time, but it can ignite high interest rates, high penalties, and ultimately the forfeiture of your home if those delinquent taxes, penalties, and interest can’t be paid. It isn’t a common occurrence, but it’s common enough. And there’s a key question here about how much you can lose going through

the process to break it down for us. Madhu Anderson, Senior Research Associate for Local Affairs. Hi Madhu.

Madhu (01:06.156)
Hi guys, good to be with you today.

Guy Gordon (01:08.04)
Welcome to the Facts Matter podcast. It’s good to have you with us. So this really revolves around what is a Supreme Court case now, but it involves a family from Isabella County, for those of you that don’t know where that is, it’s right here. It’s Mount Pleasant would be the county seat. And this is a family that got into a little trouble on their taxes. And when it went through forfeiture,

they lost a lot more than they bargained for. Can you tell us more about the puns and kind of just tell us that story? Cause I really think it distills the issue so well.

Madhu (01:44.728)
Yeah, sure. It could be a very common issue for somebody. The Pungs inherited the home, or Mr. Pung inherited his home from his father who died. And they had a property tax homestead exemption on the house. And when after the death of his father, Mr. Pung assumed the exemption would continue, but it did not. And it should follow

the home in an inherited family arrangement. They appealed that and got the homestead exemption approved, but then in the next year, it was not applied. And the PUNG said, no, we already had that. So they didn’t pay their property taxes. And there’s a lot of other small details to the story, but in the end, their house was foreclosed upon. It was sold for about half its market value.

at auction and then the buyer of the home at auction actually sold the house a little bit later and made market value. So the punks are arguing that when their house was foreclosed, they should get all the proceeds of fair market value versus just what was sold at auction minus the taxes. Yes. Yes.

Guy Gordon (03:05.996)
minus taxes, old penalties and interest. Right, right. Now we remember there was a case that was, it’s very fresh, that the Supreme Court, or a gentleman, I believe, from down here in Southeast Michigan, I think he only had something like a $6 tax debt and ended up, eight, yeah, well, maybe that was the interest. And he up losing his home over it. He went all the way to the Supreme Court and the Supreme Court in the Raffelli case said, no, no, no, the sheriff, the…

Madhu (03:16.344)
Mm-hmm.

Madhu (03:20.394)
Eight. It was eight dollars. Yeah. Yeah.

Guy Gordon (03:33.53)
municipality whatever the governmental entity is should not be able to take your equity your appreciation they shouldn’t be able to take the whole enchilada just what you will plus interest in penalties so why didn’t that cover the pangs

Madhu (03:48.214)
It didn’t cover the Pungs because in Michigan that was the auction price. He was asking for the auction price. And what is happening now at the US Supreme Court is whether the previous homeowner is allowed the full market value. So they’re arguing about the taking between what was purchased at auction and what was the actual fair market value of the property.

Guy Gordon (04:15.156)
Well, they’re arguing too that anything otherwise is an illegal taking, right?

Madhu (04:20.846)
is in a yes, it’s a and the Pong should feel what they call just compensation. Now I’m not an attorney, but that’s the amount that they want. because they know the house was sold. I mean, the facts of this case are really unique, but it affects anybody in this situation. The house was sold at fair market value at almost $200,000. The Pong’s only got about $73,000 for a $2,000 tax debt.

Guy Gordon (04:27.443)
Right.

Guy Gordon (04:48.17)
but it begs the question of how you define just compensation is just compensation merely the value that you get at that share of auction is that where you establish it or is it established with maybe a market appraisal and then some good faith efforts on the part of that municipality or whoever’s for closing to get that price.

Madhu (04:53.635)
Yes.

Guy Gordon (05:14.174)
Because really there’s no motivation on the part of the government to do it. They’re just trying to get the taxes.

Madhu (05:18.798)
And I think you bring up a good point is, is this the fairest process? Is this the most appropriate process? And I believe that’s what’s going to happen as this case comes down. And we don’t know what the Supreme Court will decide, but is the process fair? And is it transparent? Are there, you know, is it, isn’t an appropriate penalty for a small tax debt to take someone’s home?

Guy Gordon (05:39.401)
Right.

Guy Gordon (05:48.906)
What are the verdicts rendered thus far? How did the punks do at the district level and at appeal?

Madhu (05:55.039)
The punks were told that you get auction price here and what That’s what they’re taking to the supreme court is they want above that auction price So that’s it was interesting that the u.s. Supreme court would take on this case But as you mentioned rafaeli there was a case in minnesota That the u.s. Supreme court recently decided that said no all you know, you have to get the proceeds back You have to give all the proceeds back

Guy Gordon (06:22.334)
So I guess it also begs the question, why is forfeiture and why is the sale of the home the only remedy here? Aren’t there tax liens or reconciliation processes that could be used?

Madhu (06:39.18)
Michigan did have a tax lien process. It’s changed a couple of years ago. And I think that was problematic in a lot of ways. It put a lot of the pressure on the tax lien buyers to get the homes to get paid. I mean, I don’t think it worked well either. And that’s why we’re in this situation where the actual sale of the home is done by the counties in a foreclosure process.

Guy Gordon (07:02.057)
Mm-hmm.

Madhu (07:07.118)
This is an area that’s ripe for transformation, I believe, because of its impact. mean, you have just this difference in what you can get at auction price versus what the fair market value of a home is.

Guy Gordon (07:20.33)
Well, I just think the narrative is so compelling. mean, it is, it’s, I’m not calling it a good story, but it is a compelling and provocative story of unfairness. And you think that there would be no shortage of legislators that would want to bring this up and champion this cause.

Madhu (07:38.051)
I think so, but it’s also a problem for the counties. You know, this is important, right? It is, yes. As a homeowner living in a community, I’m responsible to pay my taxes and those taxes give me and my local governments, they provide services for me and I should be paying for them. And there should be a proper way of making sure that people pay what’s owed.

Guy Gordon (07:42.628)
It is. The legitimacy of the collection process is at stake.

Guy Gordon (08:07.934)
We should also point out that if you look at the numbers on this, appears that counties do a lot between the foreclosure and forfeiture. You know, that there are activities in there to try to give some grace to homeowners who are in trouble.

Madhu (08:20.494)
Right.

Madhu (08:30.082)
Yes, there is.

Guy Gordon (08:30.472)
Because I think in many cases, it’s a single, only it’s four or five, six percent of homes go through and are lost through the whole process. There’s some alternative remedy that is discovered or they just find the money and pay it off.

Madhu (08:43.596)
Right, it is a tragedy when someone loses their home and not everyone is in the situation that the punks were. But it makes no sense at all. Because of the way the law is written, it makes no sense at all for a homeowner not to try to do anything to pay their property taxes. They pay a very high interest rate on delinquent taxes.

Guy Gordon (09:06.994)
And if you’re not tough on delinquency, there’s this message sent that you’ll condone fraudulent behavior, or it’s not just delinquency, then you’re kind of a tax cheat. You could encourage that.

Madhu (09:20.834)
Right. Right. But also, there are homeowners that can’t afford their taxes. mean, we have areas of high tax rates, low property values. They’re living in a home. They’re struggling. So finding ways to help these homeowners through a process is a good solution. Finding ways. But do we have to take their entire equity in their home? Maybe not. Yeah.

Guy Gordon (09:47.72)
right right so let’s look at the the key questions that the supreme court must answer in this case question what i guess would be what exactly was taken right

Madhu (10:02.37)
Yes, is it the home or is it the equity earned in the home?

Guy Gordon (10:08.614)
Or was there any loss at all? it gets, well, I guess that’s really question number two. What is the home’s value and how do we fairly assess it in this process?

Madhu (10:23.128)
Yes, is it at the time of the auction? Is it the time before taxes were due?

Guy Gordon (10:28.36)
Yeah, I mean, it’s not like they bring in a realtor into a listing. I mean, where do they post these auctions? The legal news?

Madhu (10:32.631)
No.

I think so. Yeah, that’s the other thing. They’re not well publicized.

Guy Gordon (10:37.48)
I mean…

Guy Gordon (10:41.766)
Right and you’re going to have to know we know that there are speculators that will go and look for those because as we saw in the punks case that was an enormous windfall.

Madhu (10:45.162)
Mm-hmm. Correct. Yeah. Yes. Yes, in a very short time frame.

Guy Gordon (10:53.96)
Yeah, this is kind of the equivalent of like storage wars where they show up and say, hey, maybe there’s something inside this tax reclosure that can be valuable to me. I guess those two questions, but the elemental question here is, is the process fair and what would constitute a fair process?

Madhu (10:57.646)
Yeah.

Madhu (11:04.492)
Yes. Yes.

Madhu (11:17.304)
Correct. So how is the auction run? Is it run fairly? Is it transparent? Is there enough notice? Did the homeowner get enough notice? Are there other options for the homeowner to pay? I mean, obviously you can do that on your own, but can we do something as a public policy to help homeowners in distress?

Guy Gordon (11:37.396)
Do you think or how do want you to speculate? in cases like this, we see think that the Supreme Court will give us a tidy resolution? All of those questions answered in one little bundle, or is it more likely that they’re going to take issue with something and kick it back to the lower courts?

Madhu (11:56.205)
I think it’s the latter. They’ll probably give some direction and send it back to the lower courts to look at the process. I think that’s what I would say.

Guy Gordon (12:06.974)
But again, could this fall under the heading? I mean, we thought that the Raffelli case resolved this. Does this fall under the heading of unintended consequences?

Madhu (12:19.81)
Maybe. Yeah.

Guy Gordon (12:19.848)
because we just didn’t take into account. And I don’t think the counties are acting in bad faith, but there just is no process or standard for how aggressively you have to seek a best price, not just a best return of your tax money.

Madhu (12:37.998)
Right, and it appears they have no other option, right? If they have to follow the law as a county, they have to foreclose on the home. And under our law right now, so they want their tax money quickly. They cannot keep the proceeds themselves, so they have no incentive to sell the house at full market value.

Guy Gordon (12:45.535)
Mm-hmm.

Guy Gordon (13:04.394)
Right.

Madhu (13:05.43)
with a nice realtor and staging and all of that. yeah, right. Right. Right. you there’s really there’s that lost equity and who gets it but whoever is speculating on that auction.

Guy Gordon (13:09.31)
Make sure you bake those cookies before you have the folks come through.

Guy Gordon (13:23.818)
Okay, any other issues that I haven’t, any nuggets that we haven’t mined?

Madhu (13:30.518)
No, think, you know, under the property taxes are a burden for many families. And so we have to help. I think the public policy should be that there should be some way to help people pay their taxes in a timely, you know, fair manner and that counties can get their money so they can provide the services.

Guy Gordon (13:47.668)
well especially in an instance like the pungs where they lose this homestead exemption because that triggers a reassessment that can be like the boulder behind indiana jones you know i mean it just it’s could be crushing

Madhu (13:59.223)
Right.

Yes, yes it can be and it that is a whole separate issue on this case. But the bottom line is their house was sold for less than what they could have sold it for on the market for a $2,000 tax bill. County needs their money, absolutely.

Guy Gordon (14:17.448)
right.

And the taxpayers want the county to get its money too.

Madhu (14:22.848)
Yes, yes, but should, you know, what happens to that loss equity is the question. And yeah, I think that’s what we need to work on.

Guy Gordon (14:33.94)
Fascinating case. Madhu Anderson, thanks for breaking it down for us. And you can read Madhu’s full paper at crcmish.org. Until next time, this was a delightful Madhu. Good to see you. All right. Thanks for joining us for this Facts Matter podcast. Tell your friends about us, won’t you? Hashtag facts matter. You can find us on Spotify, iTunes, wherever platform you search for your podcast. And then tell them about it. Share the news, unbiased.

Madhu (14:47.17)
Good to see you too, thanks.

Guy Gordon (15:04.09)
unfiltered reviews of policies that affect you like this tax foreclosure forfeiture issue. Until next time, I’m Guy Gordon for the Citizens Research Council. Take care.