Michigan homeowners can challenge tax foreclosures in bankruptcy

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.