Federal Court
Michigan homeowners can challenge tax foreclosures in bankruptcy
Michigan homeowners facing tax foreclosure got a stronger bankruptcy challenge after the Sixth Circuit ruled that a county’s 5% sales commission can push the county’s take above what a standard liquidation would allow.
Michigan homeowners facing tax foreclosure got a new argument in federal court. The Sixth Circuit said a county’s 5% sales commission can move the foreclosure into preference territory and make it harder to shield from bankruptcy challenge.
- A county’s 5% commission can change the bankruptcy analysis.
- The Sixth Circuit compared the foreclosure to a hypothetical Chapter 7 sale.
- Homeowners may have another way to challenge recent tax foreclosures.
- Counties cannot treat Michigan tax foreclosures as automatically protected.
- Michigan homeowners facing tax foreclosure may have another path to fight the loss of a house when the county keeps a 5% sales commission from the sale
Michigan homeowners facing tax foreclosure may have another path to fight the loss of a house when the county keeps a 5% sales commission from the sale. In the federal Sixth Circuit, the judges said that extra slice of money can matter under bankruptcy preference law, because it can mean the county got more than it would have in a Chapter 7 liquidation, the form of bankruptcy that sells off assets to pay creditors.
The fee that changes the math
The key question is Section 547(b)(5), which asks whether a creditor received more from the transfer than it would receive in a hypothetical Chapter 7 case. Here, the county’s commission comes off the top of the foreclosure sale price and goes directly to the treasurer. Bankruptcy creditors do not receive sales commissions, so the county’s recovery is not the same as what it would get in a straight liquidation.
Why homeowners and counties will notice
For homeowners, the ruling means bankruptcy may still offer a way to challenge a tax foreclosure that looked final. The commission is not a side detail, the court treated it as part of the value the county takes from the sale, and that can matter enough to bring the transfer into preference territory.
For counties and treasurers, the decision means they cannot assume Michigan tax foreclosures are automatically insulated from this kind of bankruptcy challenge. The court rejected a categorical shield, leaving the commission at the center of the fight over how much value the county actually kept.