MSC: No Compensable ‘Taking’ When Real Property Fails To Sell At Public Auction

There is no “taking” under the Michigan Constitution’s Takings Clause if the foreclosing governmental unit attempts to sell the foreclosed-upon property at a public auction but the property does not sell, the Michigan Supreme Court has unanimously decided.

The plaintiff in Yono v County of Ingham (Docket No. 166791) was delinquent on his taxes for commercial property that he owned in Lansing, Michigan. The Ingham County Treasurer, acting as the foreclosing governmental unit (FGU), foreclosed on the real property and offered it for sale at a public auction pursuant to the General Property Tax Act (GPTA), MCL 211.1 et seq. When the property did not sell at auction, the Treasurer deeded the property to the Ingham County Land Bank Fast Track Authority (Land Bank) for $1.

The plaintiff then sued the defendants, claiming they violated the Takings Clause of the Michigan Constitution (Const 1963, art 10, § 2). The plaintiff claimed that he had a vested right in the equity in his real property equal to its fair market value minus the amount of property taxes owed and costs attributable to the tax foreclosure.

The Michigan Supreme Court disagreed.

“We hold that there is no compensable taking if the foreclosing governmental unit (FGU) attempts, in conformity with the requirements of MCL 211.78m(2), to sell foreclosed real property at a public auction and the property does not sell. Such an event establishes, as a matter of law, that the government did not seize property beyond what was owed and therefore did not commit a taking requiring compensation,” the justices wrote, relying on Rafaeli, LLC v Oakland County, 505 Mich 429 (2020).

Therefore, “[w]e reverse Part II(A) of the Court of Appeals’ opinion and its decision to remand the case … and we reinstate the Ingham Circuit Court’s order granting defendants’ motion for summary disposition,” the justices held.

Chief Justice Megan K. Cavanagh signed onto the opinion, joined by Justice Brian K. Zahra, Justice Richard H. Bernstein, Justice Elizabeth M. Welch, Justice Kyra H. Bolden and Justice Kimberly A. Thomas. Justice Noah P. Hood did not participate because the case was considered before he took office.

Background

When the plaintiff did not pay the taxes on his commercial property in 2014 and 2015, the Ingham County Treasurer, acting as the FGU, foreclosed and put the property up for public auction. After the property did not sell at auction, the Treasurer deeded the property to the Ingham County Land Bank for $1.

The plaintiff filed this lawsuit in 2020, asserting the defendants unconstitutionally took his property without just compensation in violation of the Takings Clause. The plaintiff maintained that he had a vested interest in the equity in his real property equal to its fair market value minus the amount of past-due property taxes and costs attributable to the tax foreclosure. The defendants filed a motion to dismiss the plaintiff’s claims. The Ingham County trial court, relying on Rafaeli, granted the defendants’ motion to dismiss, finding there was no taking that required just compensation because there were no “surplus proceeds” from a sale of real property.

The plaintiff appealed. The Michigan Court of Appeals reversed and remanded the case to determine the real property’s value (Docket No. 362536). The Court of Appeals reasoned that Rafaeli was not dispositive because “the Rafaeli Court was not dealing with a scenario like that which has been presented here, and thus had no reason to consider what might happen if property was not sold in a foreclosure sale .…”

Rather, the Court of Appeals said the plaintiff’s case was more similar to Jackson v Southfield Neighborhood Revitalization Initiative, 348 Mich App 317 (2023), rev’d in part ___ Mich ___ (July 16, 2025) (Docket No. 166320). The Court of Appeals in Jackson ruled there was a viable takings claim where the foreclosed real properties were never offered for sale at a public auction. (See, “Governmental Unit That Foreclosed On Properties Violated The Constitutional Takings Clause” on the Speaker Law Blog.)

The defendants appealed to the Michigan Supreme Court, which ordered oral argument on the application. The justices instructed the parties to address whether the Court of Appeals 1) wrongly held that the defendants violated the Takings Clause and 2) improperly directed the trial court to calculate the “surplus” owed on the property by reference to the value of the property less what the plaintiff owed on it when the foreclosure occurred.

‘Rafaeli’ Rules

In lieu of granting leave to appeal, the Michigan Supreme Court issued an opinion holding that “Rafaeli governs this case” and “because plaintiff’s foreclosed real property did not sell at the public auction held in compliance with the GPTA, there were no ‘surplus proceeds’ and, therefore, no taking that requires just compensation.”

The Rafaeli Court held that an FGU violates the Takings Clause “if it retains the ‘surplus proceeds’ from a sale of the foreclosed real property at a public auction,” the high court explained. “In so holding, the Court rejected the plaintiffs’ argument that they were entitled to receive the fair market value of their foreclosed real property, which had been sold at a public auction. … Instead, the Court repeatedly emphasized that an FGU is only required ‘to return any proceeds from the tax-foreclosure sale in excess of the delinquent taxes, interest, penalties, and fees reasonably related to the foreclosure and sale of the property – no more, no less.’ … This is because, when a property is sold at a public auction, the result of that sale determines the value of the property. … It necessarily follows that an FGU has not committed a taking requiring just compensation if there is a public auction that produces no surplus proceeds because the property failed to sell at the public auction for the minimum price of the taxes and fees owed.”

In the present case, the plaintiff asserted (and the Court of Appeals agreed) that Rafaeli was not dispositive because it involved a parcel that sold at a public auction and not one that failed to sell, the justices observed. Instead, the plaintiff claimed his case was more similar to Jackson, where “the Court of Appeals held (and we now affirm) that there is a viable takings claim notwithstanding a lack of surplus proceeds when an FGU did not offer a foreclosed real property for sale at a public auction and instead transferred that property to another governmental entity for the minimum bid as required under the then-effective ‘right of first refusal’ provision of MCL 211.78m(1).”

The plaintiff “misreads Rafaeli and misunderstands why there is a viable takings claim in Jackson that requires just compensation,” the Michigan Supreme Court explained. “Rafaeli made clear that seizing real property to collect unpaid taxes does not per se implicate Michigan’s Takings Clause. State and local governments have the constitutional authority to tax and, under that authority, may appropriate real property to recover delinquent taxes owed. … The government commits a taking only if – when attempting to collect delinquent taxes – it ‘appropriate[s] property in excess of what is owed.’ Rafaeli recognized the right to recover only surplus proceeds from the sale of a foreclosed real property because the result of a public auction sale defines whether, and to what extent, the FGU has ‘appropriate[d] property in excess of what is owed.’ … By statute, the FGU cannot sell real property at a public auction for less than the ‘minimum bid,’ MCL 211.78m(2), which is the functional equivalent of the amount an FGU is permitted to retain without implicating the Takings Clause. … Thus, an FGU’s failure to sell the real property at a public auction establishes that the FGU has not taken more than what it was owed.”

Meanwhile, the real properties in Jackson “were not even offered for sale at a public auction,” the high court observed. “The statutorily mandated sale of a foreclosed property to another governmental entity upon the exercise of a right of first refusal for only the amount owed in taxes plus permissible costs and fees did not fairly determine if the government appropriated a property interest that exceeded what it was owed. In that context, a property owner may be entitled to compensation if the value of the property interest the government retained exceeded the amount owed. … But when the government does place real property up for sale, the result of that sale is the correct metric to determine the value of the property interest the government obtained and therefore is determinative of whether a taking occurred, even if the property does not sell and remains in the government’s possession.”

When an FGU tries to sell real property at a public auction to recover unpaid delinquent taxes pursuant to MCL 211.78m(2), “the result of that sale is conclusive of whether a taking occurred and, if so, how much the property owner is owed in compensation,” the Michigan Supreme Court said. “The result of a public foreclosure sale demonstrates as a matter of law the amount of any surplus for purposes of a takings claim; the failure to sell the real property at the auction establishes that the government did not take more property than it was owed.”

Here, the high court noted the plaintiff did not argue that the defendants failed to comply with the statutory requirements in MCL 211.78m(2), nor did he offer any evidence that the Treasurer “otherwise acted in bad faith” when attempting to sell his property. “Thus, the foreclosure sale … demonstrated that the value of the property interest the government retained is less than what plaintiff owes in property taxes because the property did not sell for the minimum bid. Because there were no proceeds from the sale, plaintiff is not entitled to any compensation.”

Therefore, “we reverse Part II(A) of the Court of Appeals’ opinion and reinstate the Ingham Circuit Court’s order granting defendants’ motion for summary disposition with respect to plaintiff’s takings claim,” the Michigan Supreme Court concluded.