Unpaid $8.41 property tax bill cost Michigan man his house

In Michigan, $8.50 can buy a decadent bar of fudge from Mackinac Island. A similar amount could also cost someone their house.

It was $8.41 to be exact — that was how much former Michigan resident Uri Rafaeli failed to pay on his property tax bill for a house he owned in Southfield, an economically modest town of 73,000 roughly 15 miles north of Detroit. That oversight led the local county treasurer to foreclose on the house in 2014, sell it and pocket the proceeds, according to court documents in a case before the state's supreme court this week.

"It seems pretty outrageous to take an entire home from someone for this," said Rafaeli's lawyer, Christina Martin, an attorney with the Pacific Legal Foundation, a legal nonprofit. "I'm optimistic that we're going to get a good decision from the justices."

Rafaeli bought the suburban Detroit house in 2011 for $60,000 and, after the purchase, he underpaid his property tax balance that year, court documents state. Two years later, he tried to pay back the 2011 balance including additional fees. However, he miscalculated the interest that had accrued and his payment was short $8.41.

The 83-year-old went on to pay taxes for 2012, 2013 and part of 2014, but the unpaid $8.41 led the Oakland County Treasurer's Office to foreclose on the house in February 2014 and auction it to a buyer for $24,500. Attorneys representing the county said in court documents that they had mailed pending foreclosure notices to Rafaeli well beforehand.

County blames homeowners for "any harshness"

Rafaeli's case isn't unique, his attorney said. Martin's other client in the state supreme court case is former Michigan resident Andre Ohanessian, who bought 2.7 acres of vacant land in nearby Orchard Village in 2004. His plan was to build a home on the property, but the 2008 recession led to struggles keeping up on property tax payments, according to court documents.

Ohanessian moved to California in 2011. He said he stopped receiving tax bills and didn't realize Oakland County would seize the land over $6,000 in unpaid back taxes. The county foreclosed, also in February 2014, and sold it for $82,000.

Officials in Oakland County were allowed to sell those properties under a 1999 Michigan law passed to help reduce residential blight in the state due largely to unpaid property tax bills. County officials declined to comment on the case, but court documents from their legal team argue that both owners had ample time to pay up.

"It is undisputed that [Rafaeli and Ohanessian] failed to fully pay their property-tax obligations," lawyers for the county said in April legal documents. "It is also undisputed that Oakland County provided constitutionally adequate notice of the delinquencies."

The county attorneys said the court case exists only because Rafaeli and Ohanessian "chose not to pay their taxes. ... Any harshness that results from losing excess equity is the natural consequence of [Rafaeli and Ohanessian]' own actions."

Rafaeli did not live in the Southfield home. He rented it out to tenants and used the rent generated to fund his retirement, Martin said. After the foreclosure, Rafaeli moved to Israel.

Martin's Pacific Legal Foundation, which leans libertarian, said there are other instances around the U.S. of local governments taking residents' home for low amounts of unpaid taxes, including for $236 in Arizona and $1,125 in Montana. Massachusetts, Minnesota, Nebraska and Oregon also have versions of the Michigan law that allows such seizures, Martin said.

After losing their Oakland County properties, Rafaeli and Ohanessian sued the county in 2015, and lost. Martin said her organization took Rafaeli's case in 2017 and had been pushing the Michigan Supreme Court to reexamine the situation.

A year ago, the court agreed. Opening arguments for the case began Thursday, during which lawyers for Oakland County showed what they called copies of foreclosure notices sent to Rafaeli and Ohanessian.

"All the notices in the world still doesn't make it OK for the government to steal from you," Martin said.

Martin said she is seeking a monetary award for her clients, although the actual dollar amount is undetermined. Ideally, the men would get the equity amount of the properties when they were sold by the county n 2014, plus any interest accrued since then, she said.

"The end game is basically getting compensation for both clients," Martin said. "And we're trying to put a stop to home equity theft all across the nation, either through legislative change or we want to sue."