A recent federal appeals court ruling allows a Michigan woman to challenge a county's foreclosure practice that turned a small tax debt into a windfall for the government. According to Reason's Short Circuit roundup, Denise Thompson owed about $3,000 in taxes, but Allegan County foreclosed on her home, sold it, and kept all $23,500 in proceeds. The Sixth Circuit, in an unpublished opinion, found that her claims are not time-barred, letting the case proceed.
The ruling is significant because it gives a judicial forum to a growing policy controversy: whether local governments may seize more than they are owed when collecting delinquent taxes. The Institute for Justice, which publishes Short Circuit, has been active in challenging such forfeitures as a violation of property rights.
While the Sixth Circuit's decision is narrow—it only addresses the statute of limitations—it opens the door for Thompson to argue that the county's retention of the surplus was unconstitutional. The case fits into a broader pattern of courts and legislatures grappling with the limits of tax foreclosure, where homeowners can lose substantial equity over relatively modest debts.