Based on your question, I am assuming your lot is located in a plat, and the alley was dedicated as part of the plat. Even if there is no visible evidence of the alley on the ground, it still exists, at least for the benefit of plat owners. An alley typically provides ingress and egress only. If the alley is legally vacated title would go to the adjoining owners. As you may have guessed, there are a number of issues, but an expereinced real estate attorney with a copy of the plat map could quickly provide some guidance.
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First I suggest you find a surveyor to survey the land and determine what is actually yours, what your neighbor’s land is and where the alley is. Once you have this you can take the survey to an attorney to help you decipher the situation and best determine your rights.
The above statements are provided as general information and not intended as legal advice. Each matter has its own set of unique circumstances that cannot be adequately addressed without consultation. You are strongly advised to hire an attorney licensed to practice law in your state to represent you.
I agree with my colleagues. You do not want to just leave this situation alone. Michigan law has a doctrine called "adverse possession," which can give encroaching property owners legal rights in the property, after 15 years. I would try to preserve the neighborly relations, but with the understanding that everyone stays on their own land.
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