Delinquent Taxpayer Beware: A Deal May Not Be A Deal

One of the responsibilities of owning real estate is the payment of real property taxes. A word of caution in delinquent tax situations – the county can still sell your property unless you have a written agreement withholding it from sale while back taxes are being paid.

If the real property taxes are not timely paid, then the county can file a Certificate of Forfeiture for the non-payment of taxes and then foreclose if the property is not timely redeemed. If the property is not timely redeemed, then once the county completes the foreclosure proceeding, there is no right of redemption.

One can, however, enter into repayment arrangements with the county for the payment of the delinquent taxes. However, a delinquent taxpayer must be very careful that the county agrees in the repayment plan to withhold the property from the tax sale as long as the payments are made under the repayment plan.

If the county does not specifically agree to withhold the property from the tax sale, the county can still foreclose on the property for the delinquent taxes even after a repayment plan has been entered into.

The Michigan Court of Appeals in a recent unpublished decision, Lancaster & York v. Oakland County Treasurer, 2017 WL 4654937 (October 17, 2017) upheld the ability of the county to foreclose on the real property notwithstanding a repayment plan. The county made no express promise in the body of the repayment agreement to withhold the property from tax sale.

The appellate court relied upon the pre-existing duty rule in that a party's promise to provide performance that he is already otherwise required to provide is not valid consideration to render an agreement an enforceable contract. Under common law, the pre-existing duty rule extends to promises to repay a pre-existing debt.

Given that the taxpayer had the pre-existing duty to pay taxes, the repayment agreement was not an enforceable contract given that there was no new consideration. As result, the appellate court upheld the county's foreclosure of the properties for unpaid taxes notwithstanding the repayment plan.

Taxpayers need to be vigilant in entering into a repayment plan for the payment of delinquent taxes. The repayment plan must specifically provide that the county will withhold the property from the tax foreclosure sale as long as the payments are made under the repayment agreement.

Otherwise, there is nothing to stop the county from foreclosing on the real property notwithstanding the taxpayer’s payment of taxes under the repayment agreement.

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