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Preston v. United States Department of Treasury

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

May 14, 2018




         When plaintiff Des Preston's mother, Helen, departed this world, she left her son at least two material things: a house on Apple Way in Ann Arbor, Michigan, and a hefty bill for unpaid property and income taxes. Washtenaw County's tax collection efforts ultimately led to a foreclosure proceeding on the house, which Des Preston largely ignored until it was too late. The Internal Revenue Service (IRS) bid in the amount of the unpaid property taxes at the foreclosure sale, which was well below the market value of the house. When Preston failed to exercise his right of redemption, the IRS then sold the house at auction to a group of six real estate speculators for considerably more money, but still well below the house's market value, according to Preston.

         Although the taxing authorities gave Preston proper notice, he contends that due to his mental infirmities, he was entitled to some form of enhanced notification. He has filed a lawsuit to unwind the sales, presumably based on his rights under the Due Process Clause. The Court issued a temporary injunction that forestalled a deed conveyance by the IRS to the auction purchasers, so that the legal issues could be sorted out. The government has filed a motion to reconsider the injunction and a motion to dismiss the complaint. Preston's circumstances are unfortunate, and his story reveals several inequities. But all the actors behaved within the bounds of the law, and Preston has not stated a cognizable claim for relief. Therefore, the Court will vacate the preliminary injunction, grant the motion to dismiss, and dismiss the case.


         The facts assembled below come from the amended complaint and the public records of the proceedings leading to the tax foreclosure of the Preston family home. The parties have not registered any dispute about them.

         The Washtenaw County, Michigan Treasurer filed a petition on December 2, 2015 for foreclosure of the Preston home on Apple Way in Ann Arbor, Michigan to recover unpaid property taxes on the residence in the amount of approximately $20, 000. The home formerly was owned by Helen K. Preston, plaintiff Des Preston's mother. Helen died on June 20, 2012, leaving a number of unpaid tax liabilities including the outstanding property taxes and unpaid federal income taxes, which to date have not been paid by her estate, her son, or anyone else. Before the foreclosure and Helen Preston's death, the IRS had recorded notices of federal tax liens against the home in February and March 2012 for assessments relating to tax years 2001, 2002, 2004, 2005, 2007, and 2010, amounting to just under $46, 000.

         On August 5, 2016, a representative of the County visited the home, had personal contact with the occupant of the property, and served on the occupant a copy of a notice of a hearing in the state circuit court on the County's petition for foreclosure, indicating that the hearing would be held on February 22, 2017. According to the notice affidavit, the County representative also “orally informed the occupant that this property will be foreclosed and the occupants will be required to vacate unless delinquent taxes, interest, penalties, and fees are paid to the county Treasurer before the foreclosure date.” The notice of the hearing on the petition for foreclosure also was served by certified mail, addressed to the Estate of Helen Preston, c/o Des Preston, and a signed return receipt executed by Des Preston indicates that the mailing was received by him on November 2, 2016.

         On February 22, 2017, presumably following the hearing on the foreclosure petition, the Washtenaw County, Michigan circuit court entered a judgment of foreclosure vesting absolute title to the home in the County effective as of March 31, 2017, following the expiration of the redemption period allowed by Michigan Compiled Laws § 211.78k. The record does not indicate, and the complaint and amended complaint do not allege, that the plaintiff ever presented to the state court any written objection to the foreclosure, or that he appeared at the hearing on February 22, 2017 to raise in person any contest or dispute about the foreclosure.

         After the government's revenue agent noted the entry of the judgment of foreclosure in the public record, the IRS exercised its right of redemption as a lien holder on the property and bought it from the County on a bid for the full amount of the approximately $20, 000 in back property taxes. On December 12, 2017, the IRS sold the property to six individuals (who recently were named as defendants in this case), who were the high bidders with a purchase bid of $265, 000 at an auction sale. The buyers subsequently tendered to the government the full amount of their bid, and the government's agent attested that the only task remaining to be done to complete the sale is delivery of the deed.

         According to the amended complaint, plaintiff Des Preston is an adult male, age 59, who resides in the home on Apple Way, which was owned by his deceased mother. Preston inherited the house upon her death, although the amended complaint suggests that “title has not been perfected, ” by which it appears to mean that no recorded transfer of the property via the estate to the plaintiff ever was accomplished. Preston alleges that he suffers from “debilitating depression” and “post-traumatic stress disorder” (PTSD). He contends that he was diagnosed with PTSD by a mental health professional before the foreclosure occurred. Preston asserts that he “has a high I.Q.” and “attended the University of Michigan as a student, ” but that, due to his mental condition he is “employed as a dishwasher at a friend's restaurant.”

         Preston has presented a number of affidavits in opposition to the government's motion to dismiss. Although they have no legal bearing on the issues presented in the motion to dismiss, which challenges the adequacy of his pleadings, the Court will discuss them here because they serve to round out the facts of his story, and presumably could be alleged in another complaint amendment if they were consequential.

         Preston's attorney (Jonathan Rose) and his employer (Martin Contreras) aver that they knew Preston through the course of working with him more than 30 years ago to “resist University of Michigan [administrators' efforts] to censor students.” Rose attests that he encountered Preston again in December 2017, after Mr. Contreras contacted him and suggested that Preston needed legal help to contest the foreclosure of the family home. Rose says that “Mr. Contreras made the referral in October but Mr. Preston made himself available for contact [two] days before the sale, and then slept all the next morning, so I was unable to have court papers on the judge's desk until the time of the sale.” Rose attributes Preston's lack of attention to the case to “his severe depression.” Rose also says that he has observed “Mr. Preston to be depressed and the depression to be severe and obvious.” Based on his observations, Rose says that Preston is “slow acting, distracted, has [a] dour mood, is reported by his employer to be slow at work, unsmiling, [and] not [to have a] fun demeanor.” Rose concludes that Preston “ignores his rights until an easy matter becomes an emergency and too late to deal with.”

         In his own affidavit, the plaintiff asserts that he is “competent to testify” as to all of the facts stated. He explains that he has a friend ready to offer more than $100, 000 to retire the unpaid tax debts on the property, and that “[i]n October 2017 [he] tendered to [Revenue Agent Patricia Hall] payment of $92, 000, or whatever larger amount [was] owed, ” but “Ms. Hall declined [his] tender, saying that an auction was set on [his] house; also that [he] had to leave.” Preston states that Ms. Hall “did not offer an eviction case [sic] or other process to get [him] to leave or to present defenses, ” and that “[t]he said auction was not held for two months.”

         Preston asserts that he has “suffered severe depression for at least several years, ” that he has “a down mood, and depressed activity, ” and that he “do[es] not work well nor stay fully awake well.” Preston asserts that his “menial job [as a dishwasher] is the best [he] can do given the depression.” He also asserts that his “depression is not subtle” and “is very apparent to those around [him].” He states that he was “unable, due to depression, to contact [his] own attorney” for “well over a month, ” until the date his affidavit was prepared, and that he made contact with attorney Rose only after Mr. Contreras “[l]ed [him] personally with phone in hand, to a place to talk with Mr. Rose, and [they] were able to have a conversation.” Preston also states that he “attended [the] University of Michigan and did half the work for an undergrad degree, before the depression set in.” He explains that he “[has] the skill to work at ...

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