Property Tax Forfeiture

By: Lance T. Denha, Esq.

When you fail to pay your real property taxes and these taxes become seriously delinquent, there is no doubt that property will be forfeited to the taxing authority, which here in Michigan is the county treasurer. The County Treasurer will sell a tax lien (also called a tax certificate) to the highest bidder at public auction. The tax certificate gives the purchaser a priority lien on the property.

In Michigan, if there are two years of non-payment for property taxes then the property owner will forfeit the property to the County Treasurer on March 1st of the second year of delinquency. The court will enter a judgment of foreclosure typically the year after (year 3 of the delinquency) at which point it is then allowed to be sold to a new owner.

When a property owner does not redeem their property within the statutory redemption period (which is one year in Michigan) a tax deed will be available to the tax lien buyer. The tax deed conveys an ownership interest to the tax lien buyer. While the issuance of a tax deed is a legal conveyance of ownership, it is superior to all other interests, the prior property owner and/or other parties of interest (such as mortgage companies, trustees, heirs, etc) can challenge the conveyance if proper notice of the tax deed issuance was not provided. That said, and as a matter of caution, all buyers of tax deed properties should fully research the history of property ownership, including statutory requirements regarding proper notice, prior to investing in properties conveyed by a tax deed.

It is incumbent upon the buyer of a tax deed to perform their due diligence to fully understand and evaluate the ownership interest they are acquiring. There are potential risks to title of tax deed properties. For example, were all of the interested parties, such as the prior owner, mortgage lender and any others given proper notice of the tax sale? Are there any other disputes regarding ownership? In addition other potential issues that are potential risks to title may include, but are not limited to: state and federal tax liens, bankruptcy filings, unsatisfied mortgages, environmental issues, wetland problems, estate transfers of ownership, clean-up assessments, demolition liens, or suits to set aside tax deeds, improper sale, double or improper assessments, improper descriptions, publication and/or notification inadequacies. The tax deed buyer should become familiar with all of these potential risks and/or consult with competent counsel familiar in these matters.

If a tax deed owner has concerns regarding the issue of proper notice, there are at least three opportunities to quiet title:

1. The preferred method might be through mutual agreement. Others who have or have had an ownership interest in the property may be willing to legally acknowledge in writing that they no longer lay claim to
title.

2. A second method may be to demonstrate ownership through possession over a period of time. In certain instances, possession may serve as notice to all others and proof to the court that your interest in the property is primary.

3. Lastly, one may seek to confirm title through the courts. Basically, the tax deed owner may file a blanket lawsuit against all persons in the chain of title who may have had an interest in the property in the past. The suit asserts that the plaintiff owns the property outright, by virtue of the tax deed. The suit calls for any party who thinks otherwise to appear in court and assert their ownership interest so that the court can determine the true & legal owner.

For the homeowner, in an effort to avoid the risk of forfeiture of property as a result of failure to pay the property taxes, it is highly advisable to take action to reduce your property tax liability prior to falling behind in your payments by utilizing an installment agreement with the taxing authority, qualifying for a a property tax exemption or challenging the taxable value of the home to lower the amount of taxes owed.