Good News for Investors and Servicers: Court of Appeals Says No to City of Detroit Efforts to Collect Unpaid Property Taxes
On March 15, 2018, the Michigan Court of Appeals held in City of Detroit v. Baylor (Docket No. 337705) that the City of Detroit could not collect unpaid property taxes from Baylor, Ltd. (“Baylor”) because Baylor did not own the three properties at the time of the assessment. Though this ruling seems intuitive, the decision holds broader significance given the City’s pattern over the past several years of over-reaching in collection matters. By way of background, the City routinely files actions to collect on old blight judgments or unpaid property taxes against parties that had no interest in properties when the City issued the violations or assessed the taxes. Baylor presents a prototypical example of such an action by the City, and the appellate court’s ruling is a blow to the City’s efforts to collect on old debt.
The City argued that it could enforce the tax assessments against Baylor despite any transfer of ownership because Baylor was listed as the owner of the properties on the City’s tax assessment roll for 2010-2012. Baylor in turn argued that it had no obligation to notify the tax assessor of the property transfers, which transfers were obvious from even a cursory search of the land title records. The Michigan Court of Appeals agreed with Baylor, holding that the Register of Deeds, not Baylor, had the obligation to notify the City Assessor that the properties had been transferred. In turn, the City Assessor had the further obligation to update the tax roll. The Court of Appeals found persuasive that the City could cite no “legal authority charging a seller, grantor, or other transferor of real property with a corresponding duty of notification to the assessing office.” Accordingly, the Court of Appeals affirmed the circuit court’s order holding that Baylor could not be liable for unpaid taxes levied against the three properties.