Sixth Circuit Revived Tax Foreclosure Lawsuit
A federal appeals court reinstated a Michigan property owner's challenge against Allegan County's tax sale practices.
Updated on Oct. 6, 2026 in Taxes
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The U.S. Court of Appeals for the Sixth Circuit vacated the dismissal of Denise Thompson's lawsuit regarding foreclosure proceeds retained by Allegan County. The court remanded the case to address whether class-action tolling rules allow the claims to proceed despite previous timing concerns.
Why it matters
The ruling challenges the legal approach for federal civil-rights claims related to tax foreclosures in Michigan, where counties have historically retained surplus proceeds from property sales.
Allegan County retained $23,500 from the sale of a property, despite the owner having an original tax debt of $3,000. It remains under investigation whether the plaintiffs' claims are time-barred by the statute of limitations.
The players
Denise Thompson
She is a property owner who filed a lawsuit against Allegan County after it retained the surplus proceeds from a tax foreclosure sale.
U.S. Court of Appeals for the Sixth Circuit
It is a federal court that hears appeals from district courts within its jurisdiction, which includes Michigan.
Allegan County
It is a Michigan county government entity involved in tax foreclosure proceedings and the subsequent litigation over surplus sale proceeds.
Gary and Josette Day
They are property owners who lost their land in Allegan County foreclosures and joined the legal challenge regarding the retention of surplus proceeds.
The details
The Sixth Circuit determined that the lower court applied an incorrect legal standard regarding federal civil-rights claims and class-action tolling. The lower court must now re-examine if Allegan County had sufficient notice of claims while the plaintiffs were members of a proposed defendant class.
Timeline
Gary and Josette Day lost properties during 2013 and 2014.
The Wayside Church class action was filed in December 2014.
The class action lawsuit was initially dismissed in 2015.
Thompson and the Days opted out of a class settlement in July 2023.
The Sixth Circuit issued its opinion on October 5, 2026.
Market Dynamics
This appellate decision extends the precedent set by the Michigan Supreme Court's 2020 ruling that declared the retention of foreclosure surplus proceeds unconstitutional.
Property owners in Michigan may find new legal avenues to recover surplus proceeds following tax foreclosures if their claims fall within the newly defined tolling rules. This case highlights the importance for homeowners of tracking class-action developments that could influence the timeline for filing individual civil-rights claims.
The takeaway
Homeowners who lose property to tax foreclosure should carefully review their eligibility to claim surplus sale proceeds. Legal precedents in this area continue to evolve, potentially offering paths for residents to recover equity previously retained by local governments.
Further reading
For more information on state property tax regulations, visit the Michigan Taxes section.
Source note: This article includes information reported by The Times of India.
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