Parties May Not Be Contractually Bound to Tax Repayment Plans

Debtors interested in entering repayment plans to limit a secured party’s ability to foreclose on outstanding tax debt should pay close attention to Lancaster & York v. Oakland County Treasurer, 2017 Mich App LEXIS 1618, *4. In Lancaster, the Court of Appeals held that a repayment plan to pay past due taxes between the Oakland County Treasurer and Plaintiff did not prevent the tax foreclosure Plaintiff’s property.  Specifically, the Court of Appeals found that the repayment plan did not constitute a valid contract due to the lack of new consideration.

To be enforceable, a contract must be supported by legal consideration (i.e. something of value given by one party in return for the promises of the other party to the contract).  Consideration must offer something new.  A promise to fulfill a pre-existing obligation normally will not be sufficient consideration to create a valid contract.  In this case, the Court of Appeals held that because repayment plans for taxes which are statutorily owed cannot act to limit a creditor’s actions because they do not offer anything in addition to the debtor’s pre-existing obligation to pay the past due taxes. Therefore, no contract existed to restrain Defendant Treasurer from foreclosing on the property.

The Court of Appeals also rejected the Plaintiff’s argument that the need for consideration in repayment plans for past-due property taxes was removed pursuant to MCL 556.1.  MCL 556.1 states that agreements to modify an “obligation . . . in personal or real property, shall not be invalid because of the absence of consideration” if the agreement is in writing and signed by the person against whom it is to be enforced.  In rejecting Plaintiff’s argument, the Court of Appeals held that the payment of property taxes was not the type of “obligation” contemplated by MCL 556.1 because the obligation to pay property taxes is one of statutory origin, as opposed to the voluntary obligations undertaken in MCL 556.1.

This article was written by Nezar Habhab, Law Clerk.

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