2000-8 Delinquent Property Tax Foreclosure Public Act 123 of 1999
October 11, 2000
To: County Treasurers
From: Richard L. Baldermann, CPA, CGFM
Administrator, Local Audit and Finance Division
Bureau of Local Government Services
Subject: Delinquent Property Tax Foreclosure Act--Accounting Procedures
PA 123 of 1999 amended the General Property Tax Act to subject tax-delinquent property to forfeiture, foreclosure, and sale over a three-year period. The act applies to taxes levied after December 31, 1998. The act reforms the tax reversion process and places primary responsibility for its administration with the foreclosing governmental units. Under the act, "foreclosing governmental unit" is defined to mean a county treasurer or the state, if the county has elected not to handle the process. The act added several new fees as a result of changes in the delinquent property tax process. How the fees are handled, in most cases, depends on whom the "foreclosing governmental unit" (FGU) is. However, the accounting for the delinquent tax revolving funds did not change significantly with the enactment of PA 123 of 1999 and in most situations Numbered Letter 7-88 issued August 17, 1988 by Treasury still apply. We also suggest that you review the "Michigan Association of County Treasurers PA 123 Tax Reversion Guide" as a reference and obtain other information related to the tax reversion process from Treasury Web-site at http://www.michigan.gov/treasury/1,1607,7-121-1751_3437---,00.html.
The following fees are provided in PA 123 of 1999:
211.78a (4) Annual Fee to receive Notice Property Returned Delinquent
Notice to Persons with an Unrecorded Property Interest--$5.00
Notice to Holders of Undischarged Mortgages--$1.00
Record as revenue in the general fund using a "charge for services" accounts number 607 through 625.
211.78a (5) List of Tax Delinquent Properties to Holders of Tax Liens--Actual Cost
Upon the request of a holder of a tax lien purchased under the Michigan tax lien sale and collateralized securities act (MCL 211.921 to MCL 211.941), and payment to the county treasurer of the actual costs incurred in complying with that request, the county treasurer shall provide a list identifying the parcels of property for which a notice is required under sections 78 to 78l.
Record the revenue as account number 676 for "reimbursement" of costs incurred in complying with the request within activity 254 in the Delinquent Tax Revolving Fund. (Note: All activity prior to the property tax foreclosure process which occur under the regular delinquent property tax process should be accounted for under activity 253. For example, interest and penalties on taxes go to activity 253 as in the past. All revenue and expenditures after the property tax foreclosure process goes into activity 254 within the delinquent tax revolving fund.
211.78d Requires the County Treasurer to impose a $15.00 fee per parcel--$15.00
on Delinquent Property taxes which remain unpaid as of October 1
immediately after March 1 on which the taxes were returned delinquent.
Except as otherwise provided in section 79 for certified abandoned property, on the October 1 immediately succeeding the date that unpaid taxes are returned to county treasurer for forfeiture, foreclosure, and sale under section 60a(1) or (2) or returned to the county treasurer as delinquent under section 78a, the county treasurer shall add a $15.00 fee, as adjusted under section 78p, on each parcel of property for which the delinquent taxes, interest, penalties, and fees remain unpaid.
Record as revenue in the Delinquent Tax Revolving Fund for the year in which it's added to the parcel under revenue account number 641 as "Pre-forfeiture mailing notice cost."
211.78g (1) Title Search Fee--$175.00
If the property is forfeited to the county treasurer under this subsection, the county treasurer shall add a fee, as adjusted under 78p, to each parcel of property for which those delinquent taxes, interest, penalties and fees remain unpaid.
Record as revenue in the Delinquent Tax Revolving Fund for the year in which it's added to the parcel under revenue account number 639 as "Title Search Fee." Note however that the actual amount recorded for the expense of the title search may be more than the title search fee. The expense to the vendor or title search company should be recorded as "Other Contractual Services" under activity 254 within the Delinquent Property Tax Revolving Fund.
However, if the county has opted out and allows the State to foreclose property under the act, the $175 fee collected must be transmitted to the State of Michigan. In this case, the amount should be recorded as a liability Due to the State of Michigan when collected under accounts number 228. 51. The liability may be set up either within the Delinquent Tax Revolving Fund or as a liability in the Trust and Agency Fund.
211.78g (2) Forfeiture Certificate Fee Receivable $9.00
Within 45 days after forfeiture, the county treasurer is required to file with the register of deeds a certificate placing parties on notice that property has been forfeited and that title to the property will be lost 21 days after entry of a foreclosure judgment. A county treasurer must forward a copy of each certificate to the State Treasurer if that county elects to have the State foreclose on tax-delinquent property within that county.
The county treasurer must fund the recording of the forfeiture certificate from the delinquent tax revolving fund prior to the collection of the fees. Record as a receivable (asset account) in the Delinquent Tax Revolving Fund for the year which it's added to the parcel under the receivable account number 088.1 as "Forfeiture Certificate Recording Fee Receivable." At the time of redemption of the property, debiting cash and crediting the 088.1 account will eliminate the asset account. The cost is $9.00 for the first page and $2.00 for each additional page assessed to each parcel forfeited.
211.78g (5) Redemption Certificate Fee--$9.00
Requires that the county treasurer to issue redemption certificate when property is redeemed.
The amount collected for the redemption certificate when the property is redeemed is due to the Register of Deed's Office. Record the amount in the Delinquent Tax Revolving Fund for the year in which it's added to the parcel under the liability account 222 Due to the County-Register of Deed for the "Redemption Certificate Recording Fee."
The statute provides that forfeited property may be redeemed at any time before 21 days after entry of a foreclosure judgment and is recorded as revenue to the FGU. The person with a legal interest in the property must pay all of the following:
(1) total of unpaid taxes, interest, penalties and fees for which the property was forfeited;
(2) additional interest at a non-compounded rate of 0.5 percent per month; and
(3) all recording, service of process, and notice fees.
Accounting for the Sale of Forfeited Property
The act states the foreclosing governmental unit must deposit the proceeds from the sale of tax delinquent property into a "restricted account" created for each year a property sale is held. The restricted accounts should be established within the Delinquent Property Tax Revolving Fund based on the year of the sale. An activity (Activity # 254--Delinquent Tax Property Sales) is used to record the sale proceeds and the authorized expenditures of the proceeds. When the forfeited property is sold, the proceeds from the sale should be recorded in the Delinquent Property Tax Revolving Fund under revenue account number 642 "Charge for Services-Sales." The proceeds in the fund can only be used for the following expenditures in the order of priority.
1. The delinquent tax revolving fund shall be reimbursed for all taxes, interest, and fees on all of the property whether or not it was sold.
Foreclosed property reimbursement:
- Reimbursement of all unpaid base tax, interest, admin fee paid to the local units of government at settlement, pre-forfeiture notices mailing fees certified mailing fee, publication costs; pre-foreclosure personal property visits, certified mailing and publication costs, recording fees that have not been reimbursed through redemption and were originally expended from the delinquent tax revolving fund to the last day prior to all redemption rights being extinguished.
2. All costs of the sale of property for the year shall be paid.
Foreclosed property auction sales cost examples:
- Contracting costs for hiring sales auctioneer, property sale publications, property sale signs, supplies and materials necessary for conducting the sales, etc.
3. Any costs of the foreclosure proceedings for the year, including costs of mailing, publication, personal service, and outside contractors, shall be paid.
Foreclosure proceeding cost examples:
- Foreclosure petition filing fees and any subsequent court motion filing fees; costs of outside title search contractors; process service contractors; other contractors; and any other costs that were originally expended from the county's general fund or another source of revenue other than the delinquent tax revolving fund and not reimbursed to the last day prior to all redemption rights being extinguished.
4. Any costs for the sale of property or foreclosure proceedings for any prior year that have been paid or reimbursed from that prior year's property sales proceeds shall be paid.
5. Any costs incurred by the foreclosing governmental unit in maintaining foreclosed property before the sale, including costs of any environmental remediation, shall be paid.
Property maintenance cost examples:
- Boarding up empty dwellings, disconnecting utilities, environmental clean-up costs, posting property as no trespassing, mowing grass, evicting tenants, etc.
6. If the foreclosing unit is the State, any remaining balance shall be transferred to the Land Reutilization Fund.
The foreclosing unit must direct the investment of surplus funds and credit the interest and earnings from the investments to the restricted activity. The revenue and expenditures in activity 254 must be closed to a separate restricted earnings account in the fund equity.
If you have any questions, please call Ernest L. Hodgers at (517) 373-3227 or write:
Michigan Department of Treasury
Local Audit and Finance Division
P.O. Box 30728
Lansing, Michigan 48909-8228