Uri Rafaeli is an 83-year-old engineer and great-grandfather. He never expected the government to treat him like a drug dealer or gang banger. But last year the Michigan Court of Appeals held that a county government could use civil asset forfeiture—the same legal process used by police to confiscate drug lords’ mansions—to seize a modest rental property Mr. Rafaeli owned because he accidentally underpaid his property taxes by $8.41.

Mr. Rafaeli bought the house through his business for $60,000 in 2011. Later that year he...