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Rafaeli, LLC v. Wayne County

United States District Court, E.D. Michigan, Southern Division

June 4, 2015




This case is a putative class action, brought by Plaintiff Rafaeli, LLC and Great Lakes Affordable Housing, LLC (“Plaintiffs”) against Defendants Wayne and Oakland Counties and the Treasurers of those Counties (“Defendants”). Plaintiffs allege, generally, that the notices required by the Michigan General Property Tax Act (“GPTA”) – Mich. Comp. Laws § 211.1 – regarding delinquent real estate taxes, judicial tax foreclosure proceedings and the subsequent judicial foreclosure proceedings do not comport with the constitutional requirements of Due Process and Equal Protection. Additionally, Plaintiffs allege that real property foreclosed upon for failure to pay property taxes is being taken without just compensation. More specifically, this claim challenges the foreclosure and taking of the entire equity in properties in order to satisfy minor tax deficiencies. The Counties, Plaintiffs assert, provide no compensation for the loss of that equity, even though its value far exceeds the delinquent taxes, penalties, costs, and interest Plaintiffs may have owed. Plaintiffs claim that such a practice is forbidden by the Takings Clause of the Fifth Amendment to the United States Constitution. Accordingly, Plaintiffs seek an award of “just compensation, ” as well as a declaration from this Court that Michigan’s GPTA is unconstitutional.

Plaintiffs seek to bring this suit “on behalf of a class of all persons who owned real property taken by the Counties of Oakland and Wayne, Michigan…for delinquent property taxes” (Dkt. 1, Compl. ¶ 1).[1] Defendants filed a motion to dismiss (Dkt. 10), arguing that the Court lacks subject matter jurisdiction over this matter by operation of the Tax Injunction Act – 28 U.S.C. § 1341 – and that principles of comity require that this case to be dismissed.


According to the Complaint, Plaintiff Rafaeli, LLC (“Rafaeli”) is a real estate investment company that has purchased various rental properties in Oakland County since 2001 (Dkt. 1 ¶ 18). Rafaeli alleges that it purchased a rental property in Oakland County – 20159 Mada, Pontiac, Michigan – on or about August 15, 2011 (Dkt. 1 ¶ 19). Rafaeli claims that its own address at the time of this purchase was 19900 Ten Mile Road, St. Clair Shores, Michigan (Dkt. 1 ¶ 19).

Rafaeli states that Defendant Oakland County Treasurer Meisner certified on the deed transferring the Mada property to Rafaeli that “all TAXES” were “paid for five years previous to the date of this instrument as appears by the records in the office except as stated” (Dkt. 1 ¶ 20). Rafaeli claims that, despite this certification, on June 11, 2012 the Treasurer attempted to provide Rafaeli a notice of an alleged tax delinquency regarding 2011 property taxes. Rafaeli alleges that this notice was mailed to 20159 Mada – not Rafaeli’s St. Claire Shores address – and claimed a delinquency of $496.52 plus interest fees and penalties of $39.72 for a total of $536.24 if paid in June, $541.21 if paid in July, or $546.17 if in August (Dkt. 1 ¶ 20). As will become a recurring theme, below, Rafaeli claims that it never received a copy of this notice.

Rafaeli next alleges that, on August 30, 2012, $1, 691 was paid in property taxes on the Mada property. Rafaeli states that, despite this payment, on September 3, 2012, the Treasurer attempted to provide Rafaeli a second notice of delinquency – again mailing it to 20159 Mada – claiming a $496.52 delinquency and providing various increasing amounts if paid in September, October, or November. On January 14, 2013, Rafaeli claims that $576.07 was paid to the Treasurer (Dkt. 1 ¶ 21).

Rafaeli states that, despite the $576.07 payment, the Treasurer attempted to provide Rafaeli a third notice of delinquency on February 1, 2013 – again mailing it to 20159 Mada. This time, however, the Treasurer claimed $8.41 in tax and $2.26 in interest fees and penalties, for a total of $10.67 if paid in February, $206.36 if paid in March, and $206.43 if paid in April (Dkt. 1 ¶ 22). This $8.41 was, apparently, never paid to Oakland County.

Thus, on May 16, 2013, Defendant Oakland County Treasurer filed a petition of foreclosure in the Oakland County Circuit Court seeking to forfeit thousands of properties for tax delinquencies from the year 2011, including Rafaeli’s property. As to Rafaeli’s 20159 Mada property, the Treasurer sought to take this house for the $8.41 in tax, together with $198.14 in interest and fees for a total of $206.55 (Dkt. 1 ¶ 21). Rafaeli claims that it never received notice of the institution of foreclosure proceedings. Id.

Rafaeli states that, on October 29, 2013, the Treasurer attempted to provide Rafaeli with a combined “NOTICE OF SHOW CAUSE HEARING, JUDICIAL FORECLOSURE HEARING” (Dkt. 1 ¶ 24). Rafaeli claims that, for the first time, the Treasurer attempted to personally serve this notice at 19900 Ten Mile Road, Rafaeli’s address at the time the transfer deed was recorded a few years prior. Rafaeli alleges that this attempt at service was unsuccessful, and that Defendant Treasurer “knew it.” Id. Rafaeli states that, on November 4, 2013, the Oakland County Treasurer then attempted to personally serve the notice at 20159 Mada, and this time served it on one of Rafaeli’s tenants (Dkt. 1 ¶ 24). The tenant, apparently, never passed this notice along to its landlord, Rafaeli.

Rafaeli alleges that, on December 30, 2013, the Treasurer attempted to send “Final Notice” to Rafaeli and for the first time “attempted service certified mail” (Rafaeli does not allege where, specifically, this notice was mailed) (Dkt. 1 ¶ 25). Contemporaneously, the Treasurer again attempted to send the “Final Notice” to 19900 Ten Mile Road, “despite already knowing it would be returned.” Id. Also for the first time, the Treasurer attempted to serve the Notice by sending it to the address of Rafaeli’s resident agent for service of process. Id. Rafaeli claims that “[b]y January 13, 2014, the Treasurer knew those attempts had also been unsuccessful.” Id.

In sum, Rafaeli alleges that it did not receive proper notice from the Oakland County Treasurer that the Mada property had an outstanding tax delinquency, was subject to foreclosure, or was being foreclosed upon. On February 26, 2014, the Oakland County Circuit Court held a foreclosure hearing (Dkt. 1 ¶ 26). Rafaeli did not appear, allegedly because it never received any notice of this proceeding. Id. Thus, Oakland County took complete title to Rafaeli’s property for $8.41 in outstanding taxes, with $277.40 in interest and fees, for a total of $285.81. Id. This point bears repeating – Rafaeli’s entire equity interest in the 20159 Mada property (Rafaeli owned the property outright, free of any mortgage encumbrance) was forfeited to Oakland County for $8.41 in unpaid taxes. The property’s value, based on the foreclosure sale, was over $24, 000.

On August 19, 2014, the Oakland County Treasurer held an auction, entered into the terms of a purchase agreement, and accepted $24, 500 from a third party who was the highest bidder for the 20159 Mada property (Dkt. 1 ¶ 27). Rafaeli alleges that this purchaser then evicted Rafaeli’s tenants and currently has the property formally listed for sale for $70, 000.[2] Id.

Regarding what allegedly happened to Plaintiff Great Lakes Affordable Housing, the Complaint is less clear. The Complaint does not specify any real property it allegedly owned, or any tax delinquency notice it did or did not receive. The Complaint merely alleges:

Plaintiff GREAT LAKES AFFORDABLE HOUSING, LLC is also a limited liability company formed under the laws of the State of Michigan and which prior to March 31, 2014 owned real property located within the County of Wayne but which after that date had the property taken and sold by the Wayne County Treasurer due to alleged delinquent property taxes for the year 2011 (Dkt. 1 ¶ 33).

As noted earlier, the Complaint is brought as a putative class action, brought on behalf of all those that have had property foreclosed upon for failure to pay property taxes in Oakland and Wayne Counties since 2002 (Dkt. 1 ¶ 1). The Complaint asserts claims for violation of due process under “U.S. Constitution Article 5” (the Court construes this as a reference to the Fifth Amendment to the U.S. Constitution), violation of the right to “just compensation, ” violation of the right to equal protection[3] under the Fourteenth Amendment to the U.S. Constitution, and “Municipal Liability.” Plaintiffs request injunctive and declaratory relief as well as money damages. Essentially, Plaintiffs seek to enjoin Oakland and Wayne Counties from proceeding with any future tax delinquency foreclosures, forfeitures and sales.

On September 24, 2014, approximately three weeks prior to filing this lawsuit, Rafaeli filed a motion to set aside the foreclosure of the 20159 Mada property in Michigan’s Oakland County Circuit Court – In the matter of the Petition of the Treasurer of the County of Oakland, Michigan for the foreclosure of certain lands for unpaid property taxes, Oakland Co. Cir. Ct. Case No. 13-134052-CZ (Langford Morris, J.). This case remains pending. Judge Denise Langford Morris entered an injunction on September 24, 2014 which “preserve[d] the status quo until Wednesday October 1, 2014 at 10:00 a.m. at which time the Court will rule upon Rafaeli, LLC’s motion to set aside foreclosure judgment and auction sale” (Dkt. 10, Ex. B). On October 17, 2014, Judge Langford Morris entered an order stating that the “prior injunction shall remain in effect until at least December 3, 2014 at 11:00 a.m. when the parties are to return for a hearing to update the Court on the progress in the class action ...

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