Carey Jaskowski PLC Secures Appellate Win in Michigan Tax-Foreclosure Takings Case

Carey Jaskowski PLC is pleased to share an important appellate result on behalf of our client, Kakalia Management, LLC, in a Michigan Court of Appeals case involving tax foreclosure, surplus equity, and the constitutional right to just compensation.

In Kakalia Management, LLC v Otsego County Treasurer and County of Otsego, the Michigan Court of Appeals vacated the trial court’s prior judgment against Kakalia and remanded the case for further proceedings. [Unpublished opinion of the Court of Appeals, issued January 21, 2026 (Docket No. 361621).] The decision gives Kakalia the opportunity to pursue its claim that Otsego County retained property value beyond the tax debt owed without paying the just compensation required by the Michigan Constitution.

The ruling is a meaningful success for Kakalia and a reminder that the government’s power to collect unpaid property taxes does not include the right to keep a windfall at the property owner’s expense.

The Background: Tax Foreclosure and Surplus Equity

The case arose from the tax foreclosure of commercial property in Gaylord, Michigan, formerly known as the Royal Crest Motel or Econolodge. Kakalia acquired the property in 2012. After a later land contract purchaser defaulted and forfeited its interest, the property returned to Kakalia.

In 2018, the property was foreclosed under the General Property Tax Act for delinquent taxes, assessments, interest, penalties, and fees totaling approximately $89,609.47. Kakalia alleged that the property was worth approximately $455,000 at the time.

Rather than the property being sold at public auction, Otsego County exercised its statutory right under the former version of MCL 211.78m to purchase the property from the Otsego County Treasurer for the minimum bid amount, essentially the amount of the tax debt. Kakalia’s position was that the County could not acquire and retain property worth far more than the amount owed without compensating Kakalia for the surplus value.

The trial court originally dismissed Kakalia’s claims, and the Court of Appeals initially affirmed. After additional decisions from the Michigan Supreme Court, however, the Supreme Court vacated the earlier appellate decision and sent the case back to the Court of Appeals for reconsideration. On remand, the Court of Appeals agreed that summary disposition should not have been granted against Kakalia.

The Law: Rafaeli, Schafer, and Jackson

The Michigan Constitution provides that private property shall not be taken for public use without just compensation. In recent years, Michigan courts have applied that principle to tax-foreclosure cases in which the government keeps value beyond the taxes, interest, penalties, and fees owed.

The starting point is Rafaeli, LLC v Oakland County, 505 Mich 429 (2020). There, the Michigan Supreme Court held that former property owners have a vested property right in the surplus proceeds generated from a tax-foreclosure sale. When the government sells tax-foreclosed property and keeps proceeds beyond the amount owed, that retention can constitute an unconstitutional taking.

Because Kakalia’s foreclosure occurred in 2018, before Rafaeli was decided, an important threshold question was whether these constitutional principles reached back to it. The Michigan Supreme Court answered that question in Schafer v Kent County, consolidated with Hathon v Michigan (July 29, 2024), holding that Rafaeli applies retroactively to claims that were not final as of July 17, 2020. That retroactivity is what keeps a claim like Kakalia’s alive.

A further question remained: what happens when there are no “surplus proceeds” because the government does not sell the property at public auction, but instead a governmental unit purchases the property for the minimum bid?

The Michigan Supreme Court addressed that issue in Jackson v Southfield Neighborhood Revitalization Initiative (2025) (Docket No. 166320). The Court extended the principles of Rafaeli to minimum-bid transfers between governmental units under the former tax-foreclosure statute. It recognized that a constitutional taking may occur when the value of the property retained by the government exceeds what the government was owed, even when no public auction takes place and no sale proceeds are generated.

That principle was central to Kakalia’s case. To the extent Kakalia’s property was worth more than the delinquent taxes and related charges owed, the government received surplus value. Under Jackson, that surplus value may support a takings claim under the Michigan Constitution.

The Court’s Decision

The Court of Appeals vacated the trial court’s judgment and remanded the case for further proceedings.

The Court rejected the argument that Kakalia’s claim failed simply because the property had not been sold at public auction. The fact that the County acquired the property through a minimum-bid statutory purchase did not eliminate Kakalia’s constitutional claim.

The Court also recognized that the statutory remaining-proceeds process under MCL 211.78t did not provide the remedy in this situation. Under Jackson, when a governmental unit purchases property for the minimum bid under the former statute, the former owner’s remedy runs through the ordinary process for an inverse-condemnation claim, separate from the statutory process for claiming remaining proceeds. In practical terms, Kakalia’s claims should not have been dismissed at the summary disposition stage.

Why This Decision Matters

This decision reinforces a basic constitutional principle: the government may collect what it is owed, but it may not keep more than it is owed without just compensation.

Tax-foreclosure law is complicated, and property owners must take tax notices, redemption deadlines, and foreclosure proceedings seriously. But even when taxes are delinquent, the Constitution still protects private property rights. If the value taken by the government exceeds the debt owed, the former owner may have a constitutional claim for just compensation.

The decision is especially relevant to cases involving the former version of Michigan’s tax-foreclosure statute, where governmental units could acquire foreclosed property for the minimum bid before auction. Under the reasoning applied here, a governmental unit cannot avoid constitutional scrutiny simply because it obtained the property through a minimum-bid transfer rather than an auction sale.

Our Role

Carey Jaskowski PLC is proud to have represented Kakalia Management, LLC in this appeal. The decision restores Kakalia’s opportunity to pursue compensation for the surplus value allegedly retained by the government and helps clarify an evolving area of Michigan property law.

Our firm regularly represents property owners, businesses, and other clients in complex real estate, land use, constitutional, and appellate matters throughout Michigan. This case reflects our commitment to protecting property rights and ensuring that governmental authority remains subject to constitutional limits.

For property owners facing issues involving tax foreclosure, surplus proceeds, surplus equity, or government acquisition of private property, early legal review is critical. Deadlines in tax-foreclosure matters can be strict, and the available remedies may depend on timing, statutory changes, and the specific facts of the case.

Kakalia is part of a broader body of property-rights work handled by attorney Dane Carey involving governmental interference with private property. In another matter, Miner v. Ogemaw County Road Commission, a federal court ruled in favor of a property owner whose land was physically occupied and repeatedly flooded by a road-commission drainage culvert located partly outside the public road right-of-way. The court held that the government’s actions violated the federal and Michigan takings clauses and also supported a trespass claim.

Together, Kakalia and Miner reflect the same core principle: whether the government retains surplus value after a tax foreclosure or physically invades private land through public infrastructure, private property cannot be taken without just compensation. Read more about the Miner decision here: When Government Drainage Becomes a Taking: Property Owner Prevails in Federal Court [link to other blog article].

This article is for informational purposes only and does not constitute legal advice. Anyone facing a tax foreclosure or property-rights issue should consult qualified legal counsel regarding their specific circumstances. Prior results do not guarantee a similar outcome.