ASSET ACCEPTANCE CORP V GAYLA L HUGHESAnnotate this Case
STATE OF MICHIGAN
COURT OF APPEALS
ASSET ACCEPTANCE CORPORATION,
September 6, 2005
Washtenaw Circuit Court
LC No. 03-000511-AV
GAYLA L. HUGHES,
Official Reported Version
DEPARTMENT OF TREASURY,
Before: Fort Hood, P.J., and Meter and Schuette, JJ.
In this garnishment action, plaintiff appeals by leave granted from an order granting
defendant's objection to garnishment of her state of Michigan homestead property tax credit. We
reverse and remand.
This case arises out of a collections action. Defendant Gayla L. Hughes entered into
agreements for credit cards with Montgomery Ward and Saks Fifth Avenue. Defendant then
defaulted on each of these cards, owing $535.41 on the Montgomery Ward card and $1,053.30
on the Saks Fifth Avenue card. Plaintiff Asset Acceptance Corporation is the owner and holder
of each of these credit accounts.
On March 6, 2000, plaintiff filed a complaint against defendant in connection with the
past due accounts. A default judgment was entered against defendant on May 8, 2000. The 15th
District Court then authorized garnishments against defendant's bank account at the Huron River
Credit Union and against defendant's state of Michigan homestead property tax credit.
Defendant filed objections to the latter garnishment on the grounds that the funds plaintiff
sought to garnish were exempt from garnishment because defendant paid her rent solely from
Social Security disability benefits and adoption support subsidies. A hearing was held on these
objections on April 17, 2003. After hearing arguments, the court denied defendant's objections
to the garnishment of her homestead property tax credit on the ground that defendant had not
provided any legal authority demonstrating that a tax refund or credit was exempt. The court
entered an order reflecting this ruling on April 28, 2003. The court also set a hearing date for
defendant's objection to the garnishment of her credit union account. The parties subsequently
stipulated the entry of an order regarding defendant's objection to the credit union garnishment
and that issue is not before this Court.
Defendant appealed in the circuit court the district court's denial of her objection to the
garnishment of her tax credit. A hearing was held on this question on September 19, 2003. On
October 9, 2003, the circuit court entered an opinion and order vacating the district court's ruling
and remanding for entry of an order granting defendant's objection to the garnishment of her tax
II. STANDARD OF REVIEW
This issue presents a question of law. This Court reviews de novo questions of law.
Bennett v Weitz, 220 Mich App 295, 299; 559 NW2d 354 (1996).
Defendant acknowledges that in general, under Michigan law, a homestead property tax
credit may be garnished. MCL 205.30a, 600.4061a. However, defendant argues that when, as
here, a source of funds itself exempt from garnishment is used to pay rent, which rent
subsequently results in a tax credit, then the tax credit should also be exempt from garnishment.
The parties to this action do not dispute that the Social Security benefits received by
defendant are themselves exempt from garnishment. Moreover, in Philpott v Essex Co Welfare
Bd, 409 US 413, 416-417; 93 S Ct 590; 34 L Ed 2d 608 (1973), the Supreme Court held that
Social Security funds deposited in a savings and loan association retain their exempt status. The
Court based its ruling on the fact that, when deposited in a savings and loan association, the
funds retain the "quality of monies." Id. at 416. Funds retain the "quality of monies" when they
remain subject to demand and use as the needs of the beneficiary for support and maintenance
require. Porter v Aetna Cas & Surety Co, 370 US 159, 161; 82 S Ct 1231; 8 L Ed 2d 407 (1962).
In the present case, defendant argues that the tax credit retains the quality of monies
because, although separated from defendant for up to a year, the credit, once received, will be
subject to demand and use as the needs of defendant require. However, such an assertion is
simply incorrect. Without question, the Social Security benefits, when placed in defendant's
credit union account, retained the quality of monies. However, once defendant paid the money
to her landlord in rent, it no longer retained the quality of monies. Once paid to the landlord, the
rent money was in the landlord's control; indeed, it became entirely the landlord's property and
was no longer subject to demand and use by the defendant.
Moreover, following defendant's theory, the funds originating from Social Security and
paid to defendant then underwent several more changes of hands, from the landlord to the
municipality and from the municipality to the state. In each of these instances, the funds became
intermingled with other funds and lost any ability to be directly traced back to any one
individual. As a result, the funds defendant received as a homestead property tax credit cannot
be said to have come from the same source as the original Social Security benefits. The source
of the funds had changed entirely. For these reasons, defendant's argument is without merit.
Defendant has also asserted that, even if the homestead property tax credit did not retain
its exempt status based on its origination in Social Security benefits, nonetheless the credit
should still be found to be exempt on the basis that it constitutes, essentially, a form of public
assistance benefit under the Michigan Social Welfare Act, MCL 400.1 et seq. This argument too
is without merit.
It is true, as our Supreme Court has recognized, that the homestead property tax credit
primarily benefits senior citizens, veterans, the blind or disabled, or those with low incomes.
Butcher v Dep't of Treasury, 425 Mich 262, 274; 389 NW2d 412 (1986). However, even the
very wealthy are potentially entitled to some benefit from the homestead property tax credit
program. They may claim the credit on their tax returns just as any other property owner or
renter may, subject to a limitation on the percentage they may claim depending on their incomes.
MCL 206.520(8), 206.522. In light of this fact, the credit cannot be considered a form of public
assistance benefit. Thus, this argument, too, is without merit.
In summary, the circuit court committed error mandating reversal when it found that
defendant's homestead property tax credit was exempt from garnishment. These funds, although
arguably originally derived from Social Security benefits, did not retain their exempt status
because their character changed once they were spent. Moreover, a homestead property tax
credit is not a form of public assistance relief.
Reversed and remanded for proceedings consistent with this opinion. We do not retain
Meter, J., concurred.
/s/ Bill Schuette
/s/ Patrick M. Meter