About the 78t Surplus Proceeds Recovery Process

 For years in Michigan, property owners who lost their property to tax foreclosure faced a harsh reality: once the county or state foreclosing governmental unit (FGU) took the land and auctioned it, the government kept all the money—even the portion that exceeded the taxes owed. In 2020, the Michigan Supreme Court changed that in Rafaeli, LLC v. Oakland County. The Court held that when the government kept money above and beyond the actual delinquent taxes, interest, and penalties, it was committing an unconstitutional taking. In response, the Legislature created MCL 211.78t, a statute that provides a structured, court-supervised process for owners and interest holders to claim these “surplus proceeds.”

The process is not automatic. It is highly procedural, with firm deadlines and technical filing requirements. Understanding how it works step by step is crucial for any former owner, lienholder, or mortgage company hoping to secure what may be thousands of dollars in constitutionally-protected equity.

Step 1: The Effective Date of Foreclosure

Everything begins when a circuit court enters a foreclosure judgment under MCL 211.78k. On the “effective date” of that judgment, the property officially transfers to the county or the State Treasurer (depending on the county). This is the baseline event that starts the surplus-proceeds timeline. From that day forward, the previous owner no longer has title, but gains the right to pursue any extra funds that may come from a later sale.

Step 2: Filing a Notice of Intention by July 1

The first real action a claimant must take is to submit a Notice of Intention to Claim Interest in Foreclosure Sale Proceeds. This form (Treasury Form 5743) must be signed, notarized, and delivered to the FGU. The law is unforgiving: the deadline is July 1 immediately following the foreclosure’s effective date. Missing this step or failing to properly submit the notice usually extinguishes the right to recover anything.

The notice must be submitted by certified mail with return receipt requested or in person. Claimants who can file include not only the record owner but also land contract vendors, mortgage companies, lienholders, and others with a recorded interest just before foreclosure.

Step 3: The Foreclosure Sale and Government’s Accounting

After the foreclosure, counties or the state will sell the property—typically at an August or September public auction. When the sale closes, the FGU must prepare an accounting. The statute defines “remaining proceeds” as the amount left after deducting the statutory minimum bid (usually taxes, interest, penalties, and fees), costs incurred in the foreclosure and sale, and an arbitrary 5% commission kept by the FGU.

If the sale price is lower than these deductions, no surplus exists. If it is higher, the FGU mails a statement to each claimant who filed a notice, showing the calculation and alerting them to the next step.

Step 4: Filing a Motion in Circuit Court

Submitting the notice alone does not put money in anyone’s pocket. The claimant must take the next critical step: filing a motion in circuit court in the same foreclosure case. This motion must be filed between February 1 and May 15 of the year following the auction or transfer. The motion must show proof of the claimant’s interest (deed, mortgage, or lien documents) and certify whether the claimant repurchased the property at auction, since doing so can affect eligibility.

Step 5: The Court Hearing and Priority of Claims

Once the motion is filed, the FGU submits a detailed report identifying the parcel, the sale price, the deductions, and the amount of surplus (if any). The circuit court schedules a hearing, giving notice to all interested parties at least 21 days beforehand.

At the hearing, the judge reviews the competing claims. Distribution follows the priority of interests as they existed immediately before foreclosure. For example, a mortgage holder would normally be paid before a judgment creditor, and both may come before the former owner if valid liens existed. Importantly, the statute directs the court to avoid unjust enrichment and to ensure no claimant receives more than the value of their prior interest.

Step 6: The Court’s Order of Disbursement

Finally, the court issues an order disbursing the funds. The clerk then releases the proceeds to the successful claimant(s). If no valid claim is made, the FGU retains the funds, though constitutional principles suggest this outcome should be rare when former owners are properly informed.

Conclusion

The surplus-proceeds process under MCL 211.78t reflects Michigan’s attempt to comply with constitutional protections of property rights recognized in Rafaeli. Yet it is not simple: it requires owners and lienholders to vigilantly track deadlines, file notarized notices, and pursue motions in circuit court within strict statutory windows. Missing any step often means forfeiting valuable equity. By following the process carefully—notice by July 1, motion between February 1 and May 15, and court participation at the hearing—former owners and creditors can recover what the Constitution says is rightfully theirs.