What Happens If I Don't Pay Property Taxes in Michigan?

People who own real property have to pay property taxes. The government uses the money that these taxes generate to pay for schools, public services, libraries, roads, parks, and the like. Typically, the tax amount is based on a property's assessed value. If you have a mortgage on your home, the loan servicer might collect money from you as part of the monthly mortgage payment to later pay the property taxes. The servicer pays the taxes on the homeowner's behalf through an escrow account. But if the taxes aren't collected and paid through this kind of account, the homeowner must pay them directly.

When homeowners don't pay their property taxes, the overdue amount becomes a lien on the property. A lien effectively makes the property act as collateral for the debt. All states have laws that allow the local government to sell a home through a tax sale process to collect delinquent taxes. Accordingly, if you get behind in paying your real property taxes in Michigan, you might lose your home to a tax forfeiture and foreclosure process. In this context, a "forfeiture" doesn't mean that you've lost your home. In Michigan, "forfeiture" means that the county will eventually foreclose your home. You'll get some time after the forfeiture to get current on the delinquent amounts to save your home from a tax foreclosure.

How Michigan Tax Forfeitures Work

On March 1 in each tax year, property that's delinquent for taxes, interest, penalties, and fees for the immediately preceding 12 months or more is forfeited to the county treasurer. But if a property is forfeited to a county treasurer, the government doesn't get a right to possession of the property until the April 1 immediately following the entry of a foreclosure judgment or, in a contested case, until 22 days after the foreclosure judgment (see below). (Mich. Comp. Laws § 211.78g.)

You'll get about a year after the forfeiture to pay off the debt before you'll lose the home in a tax foreclosure. This period is called a "redemption period," which is explained in more detail below.

How a Michigan Tax Foreclosure Works

The foreclosure starts during the redemption period. The foreclosing party files a petition with the court no later than June 15th. (Mich. Comp. Laws § 211.78h.) If the taxes go unpaid, the court will enter judgment, generally, no later than late March of the next year and the home is foreclosed. (Mich. Comp. Laws § 211.78k.) The county treasurer then takes ownership of the property and can sell it to a new owner.

What Happens to Profits From a Michigan Tax Foreclosure and Sale?

Previously, under Michigan law, after officials foreclosed and then sold the property of a delinquent taxpayer, they could keep all proceeds above what was needed to pay off the tax debt. Most states refund the surplus, but Michigan was among a few states that allowed the government to keep the profits.

In 2014, Oakland County foreclosed on a home that Uri Rafaeli's business (Rafaeli, LLC) owned over an $8.41 tax debt. The County later sold the property for $24,500 and kept the profits. In a similar situation, Andre Ohanessian lost his property to the County, which sold it for $82,000. The County kept all of the proceeds over the $6,000 tax debt. Rafaeli and Ohanessian filed suit challenging the legality of Michigan's law allowing the County to retain the profits after a tax foreclosure.

In 2020, the Michigan Supreme Court heard the case of Rafaeli, LLC v. Oakland County and determined that homeowners who fail to pay property taxes shouldn't lose all of their equity after their home is forfeited, foreclosed, and sold off. The Michigan tax code was modified in December 2020 to align with this ruling. (See Mich. Comp. Laws § 211.78t(1).) Under this statute, you have to file a notice with the county by the July 1 immediately following the effective date of the foreclosure to claim an interest in proceeds.

Then, in Proctor v. Saginaw County, the Michigan Court of Appeals ruled that the Michigan Supreme Court's 2020 decision in Rafaeli v. Oakland County applied retroactively and that the subsequent legislative change from December 2020 applied prospectively only. To find out more about how to claim the excess proceeds after a tax foreclosure in Michigan, talk to a local foreclosure lawyer, a real estate lawyer, or a tax lawyer.

Notices You'll Receive in a Michigan Tax Forfeiture and Foreclosure

You'll receive various notices before the forfeiture and before you lose your home to the foreclosure, including the following.

Notice of Delinquent Taxes During the Collection Period

Before the forfeiture, the county treasurer has to send a first and second notice via first-class mail about the delinquent taxes. (Mich. Comp. Laws § 211.78b, § 211.78c.) The county treasurer must mail you another notice, this time by certified mail. Among other things, the notice will tell you when the property will be forfeited to the county treasurer if you don't get current on the unpaid delinquent taxes, interest, penalties, and fees. (Mich. Comp. Laws § 211.78f.)

Notice During the Foreclosure Action

The foreclosing governmental unit must mail a notice not less than 30 days before a "show cause" hearing. (Mich. Comp. Laws § 211.78i.) (A "show cause" hearing is part of the foreclosure process where the foreclosing party must demonstrate why it should get title to your home).

Personal or Posted Notice

If you occupy the property, the foreclosing party must try to serve you notice personally and tell you that, among other things, the property will be foreclosed unless the delinquent amounts are paid. If personal service isn't made, notice about the foreclosure must be posted on the property and, in addition, a notice must be posted that has the information that otherwise would have been verbally provided had personal service been accomplished. (Mich. Comp. Laws § 211.78i.)

How to Redeem the Property After a Tax Forfeiture in Michigan

You get a redemption period of about one year, during which you can pay off the delinquent amounts and redeem the home following the forfeiture (not the foreclosure).

Deadline to Redeem

Unless all unpaid delinquent taxes, interest, penalties, and fees are paid on or before the March 31 immediately succeeding the entry of a judgment foreclosing the property or, in a contested case, within 21 days of the entry of a judgment foreclosing the property, the title to the property goes to the foreclosing governmental entity. So, March 31st in the third year of the delinquency is generally the last day you get to redeem the home. (Mich. Comp. Laws § 211.78g.) But if you contest the foreclosure by filing a written objection with the court, your deadline to redeem is within 21 days after the court enters the foreclosure judgment. (Mich. Comp. Laws § 211.78k.)

The property is sold after the court enters a foreclosure judgment and after the right of redemption has expired.

How Much It Costs to Redeem the Home

To redeem, you'll typically have to pay the county treasurer the total amount of unpaid delinquent taxes, interest, penalties, and fees. (Mich. Comp. Laws § 211.78g.)

Does a Mortgage Survive a Tax Forfeiture and Foreclosure in Michigan?

Property tax liens almost always have priority over other liens, including mortgage liens and deed of trust liens. (For purposes of this discussion, the terms "mortgage" and "deed of trust" are used interchangeably.) Because a property tax lien has priority, if your home is sold through a tax forfeiture and foreclosure process, the sale wipes out any mortgages. So, the loan servicer will usually advance money to pay delinquent property taxes to prevent this from happening. The servicer will then demand reimbursement from you (the borrower).

The terms of most mortgage contracts require the borrower to stay current on the property taxes. If you don't reimburse the servicer for the tax amount it paid, you'll be in default under the terms of the mortgage, and the servicer can foreclose on the home in the same manner as if you had fallen behind in monthly payments.

Your Servicer Might Set Up an Escrow Account

After demanding repayment of the amount it paid for the taxes, penalties, plus interest (and assuming you repay this tax debt), your servicer will probably set up an escrow account for the loan. Each month, you'll have to pay approximately one-twelfth of the estimated annual cost of property taxes—and perhaps other expenses, like insurance—along with your usual monthly payment of principal and interest. This money goes into the escrow account. The loan servicer then pays the cost of the taxes and other escrow items on your behalf through the escrow account.

The downside to having an escrow account is that you'll have to make a bigger payment to the servicer each month. On the positive side, having an escrow account saves you from having to come up with a large amount of money when tax bills, and perhaps other bills, are due.

Getting Help

If you're having trouble paying your property taxes, you might be able to reduce your tax bill or get extra time to pay. If you're already facing a property tax forfeiture and foreclosure in Michigan and have questions or need help redeeming your property, consider talking to a foreclosure lawyer, tax lawyer, or real estate lawyer.

To learn more about property taxes and other aspects of homeownership in general, get Nolo's Essential Guide to Buying Your First Home by Ilona Bray, J.D., Attorney Ann O'Connell, and Marcia Stewart.