Court Revived Tax Foreclosure Surplus Lawsuit in Michigan
Michigan homeowners may regain the right to sue for surplus proceeds after their properties were seized for unpaid taxes.
Updated on Oct. 6, 2026 in Taxes
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The U.S. Court of Appeals for the Sixth Circuit vacated a lower court's dismissal of a tax foreclosure lawsuit involving properties in Allegan County. This ruling impacts Michigan residents seeking to recover proceeds from homes seized and sold by counties to settle tax debts.
Why it matters
The decision clarifies how federal civil-rights claims and statute of limitations rules apply to property owners who lost equity when their local government retained all proceeds from a tax-foreclosure sale. This change could allow homeowners to pursue financial recovery for surpluses that were previously kept by the county.
In one representative case, a homeowner owed $3,000 in property taxes before the county sold their seized home for $23,500. The legal outcome remains unknown as the court examines whether these claims were filed within the applicable statute of limitations.
The players
U.S. Court of Appeals for the Sixth Circuit
A federal appellate court with jurisdiction over Michigan that reviews district court decisions on federal law and civil rights claims.
Michigan Supreme Court
The state's highest court, which ruled in 2020 that retaining foreclosure surplus proceeds is unconstitutional.
Allegan County
A local government entity responsible for property tax collection and the foreclosure proceedings challenged in this litigation.
The details
The dispute centers on whether Michigan counties can keep the entirety of sale proceeds when a property is foreclosed for tax debts. The appeals court directed a lower court to re-evaluate whether a 2014 class action lawsuit paused the statute of limitations for individual claimants. If the lower court finds that the notice requirements for tolling were met, plaintiffs like Denise Thompson and Gary and Josette Day may move forward with their legal efforts to recover surplus funds.
Timeline
2013-2014: Gary and Josette Day lost properties to foreclosure.
December 2014: Wayside Church class action lawsuit was filed.
July 2023: Thompson and the Days opted out of class settlement.
October 5, 2026: Sixth Circuit court issued its opinion.
Money Landscape
This decision follows the 2020 Michigan Supreme Court ruling on foreclosure surplus proceeds, which established that seizing equity beyond a tax debt is unconstitutional. It marks a critical update for residents navigating the complex intersection of state property law and federal civil-rights claims.
Homeowners who lost property to tax foreclosure may need to review their records to see if they fall within the scope of this ongoing legal challenge. Because the deadline for such claims depends on specific tolling rules, you should consult with a qualified attorney to understand your options.
The takeaway
The appellate ruling reopens the door for homeowners to reclaim equity seized during past tax foreclosures. If you previously lost property to tax seizure in Michigan, contact a legal professional to determine if you are eligible to pursue a claim for the surplus funds.
Further reading
For more information on how state laws affect your home equity, visit Taxes.
Source note: This article includes information reported by The Times of India.
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Should local governments be allowed to keep surplus profits from tax foreclosure property sales?
