Part Two: Excessive Fines
Missing the forest for the foreclosures
Background
Oral arguments in Pung v. Isabella County will take place before the US Supreme Court on February 25th. In Part 1 of this series, I discussed the Fifth Amendment question facing the Court. In Part 2, I’m going to address the Eighth Amendment question posed by Pung:
Is tax foreclosure an “excessive fine” meant to deter nonpayment of property taxes?
The Fine Isn’t the Foreclosure
If you only learned about Michigan’s tax foreclosure system through lawsuits like Pung v. Isabella County or Rafaeli v. Oakland County, you’d be forgiven for thinking the system’s tax auctions were obvious money grabs by the county treasurer offices who administer them. You’d hear about a $190,000 home taken over a $2,200 debt in Pung. Or a mere $8.41 debt that produced a $24,500 windfall profit for Oakland County in Rafaeli.
Massive losses. Tiny triggers.
Michigan’s tax foreclosure auctions have certainly caused irreparable harm across the state, but it is unusual for that harm to be accompanied by massive windfall profits dropped into a county’s pockets by top dollar tax auction sales. There is profit for Michigan counties in our delinquent tax system, but it largely hasn’t come from the auctions.
That matters because the Eighth Amendment question in Pung is framed as if the foreclosure itself is the fine.
The Eighth Amendment question at stake in Pung amounts to this: Is foreclosure itself, when it wipes out equity beyond what’s owed, functioning as a fine designed to deter nonpayment, and is that fine excessive?
What’s crazy making to me is how hard you have to contort Michigan’s tax foreclosure system to make the foreclosure the “excessive fine” when the system already has a far more obvious, explicit, statewide excessive fine sitting in plain sight:
The 18% annualized interest charged on delinquent property taxes.
In Michigan, the most broadly experienced financial punishment, and the most reliable source of county profit, isn’t found in the tax foreclosure auction. It happens in the years before auction, while people are still paying, still scrambling, still trying to keep their homes out of foreclosure. Foreclosure is what happens after the system’s actual excessive fines fail to deter.
Cases like Pung, Tyler, and Rafaeli — for all the attention they’ve received — are focused on the wrong part of the tax foreclosure machine.
In this piece, I am going to show:
That the center of gravity for both punishment and profit in Michigan’s tax foreclosure system is found in the 18% annual interest charged on delinquent property taxes, not in tax foreclosures and the auction.
That the 18% interest is a fine, using the Michigan Supreme Court’s own words to prove it.
That the 18% interest is also an excessive fine, based on the huge profits generated by delinquent tax payments and the arbitrariness of the 18% figure.
That whether tax foreclosure itself is an excessive fine (as Pung argues) is not as clear a question as it may seem.
That the likely outcome of Pung will be even greater reliance on high interest delinquent tax revenue — something that will be untouched by the Court’s rulings in Pung.
1. A Million Dollars or a Penny Doubled
Statewide tax delinquency and foreclosure data show you where the center of gravity for punishment and profit lie within Michigan’s tax foreclosure system.
Between 2006 and 2017 — the peak years of the tax foreclosure crisis — for every property in Michigan that actually went into a tax foreclosure auction, eight properties went into “forfeiture” (meaning they’d entered the second year of property tax delinquency). For those seven of eight properties that managed to avoid the foreclosure auction, their owners would have had to pay 18% interest, penalties, and fees to dodge the auction block.1
This is basically the municipal revenue version of being asked “Would you rather have a million dollars now, or one penny doubled every day until day 30?”
The data clearly shows why county treasurers would know to say “I’ll take the penny.”
I’ve used the chart below a dozen times before, but it tells the story: In Wayne County, 75% of tax foreclosure profits between 2012 and 2016 came from property owners paying their delinquent taxes, plus interest, penalties, and fees. Only 25% actually came from selling properties in a tax foreclosure auction for more than the tax debt owed. I don’t have any reason to think this dynamic would be substantially different across the rest of the state.
If you wanted to challenge the most punitive, most extractive, most constitutionally vulnerable part of Michigan’s tax foreclosure system, you would challenge the 18% interest rate on delinquent property taxes.
The legal framework is there. The facts are there. The disproportionality is obvious. It would affect more people, address more harm, and target the part of the system that actually drives the “perverse incentive” for government to profit at the expense of struggling taxpayers.
But that’s not where cases like Pung and Rafaeli aim.
They aim at the taking — at the foreclosure. They aim at what happens to equity after foreclosure — the right to surplus proceeds, the right to just compensation for the value of what was taken. That’s a project to protect property rights after the taking, not a project to reduce the day-to-day harm inflicted on the people still inside the system.
What Constitutes an “Excessive Fine”?
The Eighth Amendment question in Pung v. Isabella County asks whether in rem tax forfeiture can be an “excessive fine.” What makes something an excessive fine, going off the Court’s comments in Tyler v. Hennepin County (the 2023 tax foreclosure ruling that laid the groundwork for Pung v. Isabella County), seems to be a pretty low bar.
Here’s what Justice Gorsuch (joined by Justice Jackson) said in Tyler v. Hennepin County (2023):
“Economic penalties imposed to deter willful noncompliance with the law are fines by any other name.”
“Because ‘sanctions frequently serve more than one purpose,’ this Court has said that the Excessive Fines Clause applies to any statutory scheme that ‘serves in part to punish.’”
It really doesn’t seem like there’s much legalistic nuance here. “Serves in part to punish” gets you to fine. “Excessive” is the next step, and turns on whether the penalty is disproportionate to the offense.
In Michigan, the part of the system that most obviously exists to deter nonpayment through punishment is not “foreclosure.” It’s the pricing of tax delinquency.
The foreclosure auction is a gavel. It comes down at the end. The 18% interest is a meter. It starts running early and runs for years. It’s not applied to “bad actors,” it’s applied to everyone. It’s indifferent to whether you missed a tax bill because you were sick, because you lost a job, because your mortgage servicer screwed up escrow, because you inherited a mess, or because you’re an LLC that doesn’t care. The system doesn’t ask why. It just starts charging.
So let’s take Gorsuch’s words seriously and establish first that Michigan’s 18% interest regime is a fine, and then, that it’s also an excessive fine.
2. “Is it a Fine?”, or, Don’t Punch Me and Tell Me You’re Encouraging Better Behavior
I don’t need to create my own argument to show that Michigan’s 18% interest on delinquent property taxes is a fine — Michigan’s Supreme Court has already done it for me.
In City of Detroit v. Walker (1994), the Michigan Supreme Court said the interest imposed on delinquent taxes “serves multiple purposes,” including to “encourage the timely payment of property taxes.”
In Rafaeli v. Oakland County (2020), the Michigan Supreme Court insisted the state’s General Property Tax Act “is not punitive in nature; its aim is to encourage the timely payment of property taxes and to return tax-delinquent properties to their tax-generating status, not necessarily to punish property owners for failing to pay their property taxes.”
But read those claims like a normal human being.
How exactly does state property tax law “encourage” timely payment of property taxes? It doesn’t send a cheer squad to your front door to root for your tax dollars. It threatens you with 18% interest, penalties, and fees if you don’t pay.
The system intentionally makes a behavior costly to prevent people from doing it. You don’t need to squint to see punishment here.
3. Is it an Excessive Fine?
I think the clearest proof that the 18% interest charged on delinquent property taxes is an excessive fine is found in the in the enormous profits counties across the state have reaped from their Delinquent Tax Revolving Funds — none more so than Wayne County.
Myself and others have repeatedly and extensively documented this county profit center for years. But I don’t want to make that point again here. There are plenty of ways to prove that the 18% interest on delinquent property taxes is not just a fine but an excessive one, so I’ll approach it from another angle:
I know of no publicly articulated justification for why the rate is 18%.
It’s 18% because 18% is high enough to deter behavior.
Michigan’s delinquent tax interest rate has been ratcheted up over time by amendments to the General Property Tax Act. Before 1999, the rate at the tax sale stage was 1.25% per month (15% annually). When the legislature overhauled the system through Public Act 123 of 1999, it introduced the current escalating structure: 1% per month initially, jumping to 1.5% per month (applied retroactively) upon forfeiture.
A 1999 Citizens Research Council report that informed the legislation noted, almost in passing, that “most counties show an annual surplus in their delinquent tax revolving funds, due to the significant interest and penalties due for delinquent tax payments.” In other words, the rate was already generating more revenue than the system needed, and then the legislature raised it.
What I have never seen is an analysis of what interest rate would be necessary to compensate the government for its actual costs. No cost-of-carry calculation. No comparison to municipal borrowing rates. No means testing. No proportionality analysis.
I have also never seen evidence that anyone asked whether 18% would be excessive. It seems they simply set the rate high enough to make delinquency painful and moved on.
Sure seems to me like an excessive fine.
4. Is Tax Foreclosure Also an Excessive Fine?
I think I’ve sufficiently demonstrated that the 18% interest within Michigan’s tax foreclosure system is both a fine and also an excessive fine. But, of course, that’s not what the Supreme Court is being asked. It’s being asked whether foreclosure itself — the taking of property by government — is an excessive fine. So let me address that too.
Recall what I said at the beginning of this piece: if you only learn about Michigan tax foreclosure through Pung and Rafaeli, you’d be forgiven for thinking the auction is where the system does its punishing. Lots of big equity wipeouts over small tax debts. A clean moral story.
The problem is that those stories are real but they are not typical.
Here’s what the statewide pipeline actually looks like in the peak crisis years:
1.9 million properties reached forfeiture statewide (2006–2017).
259,000 of those ultimately reached a foreclosure auction.
Of those 259,000, about 148,000 (57%) were in Detroit.
And of those 148,000 Detroit auction properties, about 86,000 did not sell.
Put those together:
If 86,000 Detroit foreclosures didn’t sell, that means only about 173,000 of the 259,000 statewide foreclosures even had a chance to produce the kind of surplus that shows up in Pung and Rafaeli.
And if only 173,000 properties out of 1.9 million forfeitures (and never mind the surely hundreds of thousands of additional delinquencies that didn’t reach the two-year mark of forfeiture) even had a shot to generate surplus proceeds, then only 9% of the properties that reached the forfeiture stage of Michigan’s delinquency pipeline even had the possibility of becoming a Pung/Rafaeli-style “windfall” story.
If you’re trying to understand what Michigan’s system does to people in the aggregate — what it punishes, what it extracts, what it incentivizes — then you can’t start your analysis at the auction and pretend those cases are representative.
Most of the time, foreclosure wasn’t a payday. It was the end of the road. And in Detroit’s case, the road often ended with no buyer at all, meaning the “fine” produced no cash benefit — just a transfer of liability: vacancy, blight, securing costs, demolition risk, administrative churn.
Which is why I keep coming back to the same point. If you want to locate the punitive, extractive core of Michigan’s system, the part that reliably produces money, and reliably disciplines behavior, you don’t look at foreclosure. You look at delinquency.
The ratio above is the story. It tells you that Michigan’s system, in practice, isn’t primarily a “foreclosure machine.” It’s a delinquency monetization machine. A system that pressures people for years, and only at the end converts the holdouts into foreclosures.
Which means if you want to talk about “excessive fines,” the most important question isn’t “is foreclosure punitive?” It’s whether Michigan’s 18% annualized interest plus stacked fees on delinquent property taxes functions as a punishment grossly disproportionate to the offense of being late on property taxes.
5. The Interest Regime Will Survive
Michigan’s most obvious, most universal deterrent, its most consistent punishment mechanism, is not foreclosure. It’s the 18% interest that runs for years before foreclosure, extracting money from people who are trying to keep their property.
Nothing in Pung threatens that.
Nothing in Tyler threatened it.
Nothing in Rafaeli threatened it.
In fact, they all conceded the point. As the attorney in the Rafaeli case said before the Michigan Supreme Court:
Rafaeli… [is] not challenging the statutory interest or penalties or fees that are tacked onto their property tax debts.
…and also, in an interview regarding the Rafaeli case:
“The government can take what belongs to them… In other words, the taxes, the penalties, the interest, the fees…”
If the Supreme Court blows up Michigan’s post-Rafaeli foreclosure math (I think it will) that upheaval will force a rethinking of the system. That’s what I’ll get into in Part 3.
But the one part of the system that will remain untouched, and that could even be increased to compensate for lost revenue, is the actual excessive fine in this system:
The 18% interest.
Even more properties enter delinquency but pay off their debt (plus interest) before reaching the stage of forfeiture.
Yet another great piece! While the 18% interest is arbitrary and high, it's most definitely meant to be coercive to drive timely payment of property taxes. Curious to think how or if a lower rate would change behavior. How do you deal with the "bad actors" who game the system even now? At least programs like PAYS, which would need to be renewed, aim to relieve the most vulnerable from this burden. I look forward to Part 3.