Statutory Surplus Claim Procedures Preclude Fifth Amendment Takings Claims in Tax Foreclosure

Introduction

Faytima Howard v. Macomb County, Mich. arises from a dispute over the disposition of surplus proceeds generated by a tax‐foreclosure sale. In 2023, after Howard fell more than a year behind on her property taxes, Macomb County foreclosed on her parcel under Michigan’s General Property Tax Act. The foreclosure sale yielded proceeds well in excess of her unpaid tax debt, but Howard never invoked Michigan’s statutory process to claim the surplus. She sued under 42 U.S.C. § 1983, alleging a taking under the Fifth Amendment because the county retained the excess proceeds. The district court dismissed her complaint for failure to state a claim, and the Sixth Circuit affirmed.

Key issues:

Does the Takings Clause require the county to return surplus foreclosure proceeds when a property owner fails to pursue state‐law recovery procedures?
Has Michigan’s 2020 statutory amendment remedied any constitutional defects identified in prior precedent?
What is the interplay between state‐defined surplus‐recovery processes and a federal § 1983 takings remedy?

Summary of the Judgment

The Sixth Circuit held that Michigan’s amended foreclosure regime provides a constitutionally adequate procedure for property owners to recover any surplus after a tax sale. Because Howard never submitted the required pre‐sale notice of intent or post‐sale court motion to claim excess proceeds under Mich. Comp. Laws § 211.78t, she forfeited her right to those funds. The court relied on Nelson v. City of New York and Tyler v. Hennepin County to conclude that the Takings Clause does not compel a state to return surplus proceeds so long as it offers a reasonable statutory process—and that failure to invoke that process bars a takings claim. The judgment of dismissal was therefore affirmed.

Analysis

Precedents Cited

Rafaeli, LLC v. Oakland County, 952 N.W.2d 434 (Mich. 2020) – Michigan Supreme Court held that surplus foreclosure proceeds must be returned under the state constitution.
Hall v. Meisner, 51 F.4th 185 (6th Cir. 2022) – Sixth Circuit applied the U.S. Takings Clause to Michigan’s pre‐2020 foreclosure law.
Tyler v. Hennepin County, 598 U.S. 631 (2023) – Supreme Court held that a state cannot keep surplus proceeds absent a statutory process to return them.
Nelson v. City of New York, 352 U.S. 103 (1956) – Upheld New York City’s requirement that owners follow a statutory process to claim surplus funds.
Knick v. Township of Scott, 588 U.S. 178 (2019) – Property owners may bring a § 1983 takings claim without exhausting state remedies, but did not disturb Nelson’s rule on surplus procedures.
County of Mobile v. Kimball, 102 U.S. 691 (1880) and Jones v. Flowers, 547 U.S. 220 (2006) – Clarified that taxing and collection procedures are not per se takings.
United States v. Lawton, 110 U.S. 146 (1884) – Historical common‐law principle that residual sale proceeds belong to the owner.

Legal Reasoning

1. Takings Clause Framework. The Fifth Amendment protects against uncompensated government appropriation of private property. Taxation and related collection measures (interest, fees, foreclosure) do not constitute takings so long as they do not exceed the debt owed.

2. Historical and Precedential Anchor. From Magna Carta through English statutes and common law, and in early American practice, sale of property for taxes required return of any “overplus” to the owner. Tyler reaffirmed that principle under the U.S. Constitution and emphasized that states must provide a means to recover surplus or face a taking.

3. Michigan’s 2020 Amendment. In response to Rafaeli and Hall, Michigan enacted Mich. Comp. Laws § 211.78t, creating:

A pre‐sale notice and claim‐intention form (four‐month window).
Post‐sale motions in state court (file by mid‐May following sale).
County obligations to notify titled owners and disburse surplus upon court order.
A 5% sales commission plus itemized collection costs deducted before surplus distribution.

4. Application to Howard. Because Howard failed to submit either the pre‐sale notice or post‐sale motion, she forfeited statutory remedies. Under Nelson and Tyler, failure to invoke a constitutionally sufficient procedure means no taking has occurred.

5. § 1983 and Knick. Knick permits a direct federal suit for a taking after it occurs but does not preempt state provisions that prevent a taking in the first place. Michigan’s surplus‐recovery process does exactly that—eliminates the taking by offering an owner’s recovery route.

Impact

• States can insulate tax‐foreclosure regimes from Fifth Amendment challenges by enacting clear, reasonable procedures for surplus recovery.
• Property owners must comply with statutory claim processes to preserve their rights; failure to do so bars takings claims.
• Federal courts will defer to state‐defined processes where they mirror historical practices and do not impose undue obstacles.
• Legislative design of fees (e.g., commissions, administrative costs) will be tested only if procedurally enforced and challenged, not as facial takings questions.

Complex Concepts Simplified

Takings Clause: Requires “just compensation” when government takes private property for public use. It does not forbid taxation or collection measures that do not exceed what is owed.
Surplus Proceeds: Any funds left after a tax sale pays off the owner’s debt, interest, and legitimate costs. Historically, these funds belong to the original owner.
Statutory Process: A series of steps—pre-sale notice and post-sale motion—by which owners claim surplus. If an owner does not follow these steps, the surplus stays with the county, not because of a taking, but by design.
Forfeiture vs. Taking: Failure to use a state‐provided remedy is forfeiture of legal rights. A taking exists only if the government keeps surplus without offering a means of recovery.

Conclusion

Howard v. Macomb County confirms that a state foreclosure regime with a clearly defined, historically rooted surplus‐recovery process does not violate the Fifth Amendment when the owner fails to invoke it. The decision harmonizes Nelson, Tyler, and Knick by distinguishing between remedy exhaustion and the prevention of takings. It underscores that legislatures may define exclusive state procedures to guard against unconstitutional overreach in tax enforcement—procedures that property owners must follow to secure their surplus funds.