U.S. Supreme Court Rules Against Pung Family in Isabella County Tax Sale Compensation Dispute

The U.S. Supreme Court ruled Tuesday against a Michigan family in Pung v. Isabella County, deciding that the baseline for “just compensation” in a tax sale is “the price obtained in a tax sale,” not the property’s fair-market value after paying a tax debt.

“Supreme Court sides with Michigan county in a tax foreclosure case The Supreme Court has rejected an effort to reshape tax foreclosure sales to allow the original owners to keep more money when homes are sold to recoup unpaid taxes WASHINGTON -- The Supreme Court on Tuesday rejected an effort to change tax foreclosure sales to let homeowners to keep more money when their property is sold to recoup unpaid taxes”

ABC News

In the case, the Pung family argued the baseline should be the $192,000 fair-market value of the property after the $2,200 tax debt payment, while the surplus profit from the home’s public auction was $74,000, according to The Detroit News.

ABC News

Justice Samuel Alito wrote that “Pung’s fair-market-value theory would impose unprecedented burdens” on jurisdictions and “might well make tax sales impractical,” and the court sent the family’s case back for further proceedings.

The justices also rejected the argument that Isabella County’s forfeiture of more than $190,000 of equity to satisfy a $2,200 tax debt was an excessive fine under the Eighth Amendment, while vacating the Sixth Circuit’s decision on whether the county’s seizure and sale process was unfair.

The Supreme Court’s decision was joined by seven other justices, with Justices Sonia Sotomayor and Clarence Thomas writing separate concurring opinions, and the case was remanded to the U.S. Court of Appeals for the Sixth Circuit for further consideration.

The Supreme Court agreed with Isabella County that the surplus proceeds are the measure of compensation “as long as that tax sale was “fairly conducted,” and it declined to resolve what counts as a fair process itself.

SCOTUSblog reported that after the house was sold at auction for $76,000, Pung received the difference between that price and the taxes owed, but Pung argued he was entitled to approximately $192,000 based on a later sale price.

Associated Press

The court’s opinion emphasized that “for hundreds of years, English and American law have allowed the seizure and sale of property as a tax-collection method,” provided the government returns surplus proceeds to the debtor.

In a separate concurrence, Clarence Thomas wrote that “Whatever utilitarian desire the state may have for a tax-collection system” cannot justify confiscating homes based on small tax debts, and he said what Isabella County did “was wrong, and, on my initial view, likely unconstitutional.”

The Supreme Court’s remand means the lower court will now decide whether the auction of the Pungs’ home was fairly conducted, after the justices vacated the Sixth Circuit’s ruling on the fairness of the seizure and sale process.

The ruling is expected to keep alive a broader fight over foreclosure fairness for homeowners in places like Baltimore, where the Baltimore Banner said thousands of households fall behind on their bills each year and become eligible to have their debts auctioned to third-party tax collectors.

The Baltimore Banner described how homeowners must pay back investors with fees and interest or risk losing their houses and any equity, and it said the system can allow a “relatively small tax bill” to put “tens or hundreds of thousands of dollars worth of property and equity” at risk.

Justice Samuel Alito’s decision, as quoted by the Baltimore Banner, held that “The auction price is the proper baseline, at least when the procedure is fair in light of our country’s history of tax sales,” and it sent the case back to decide whether the plaintiff’s home was auctioned off fairly.

In response to the decision, Larry Salzman, vice president for litigation at the Pacific Legal Foundation, said “The Pungs won the right to continue their fight in the lower courts,” while attorney Matthew Nelson said the county was confident its process “exceeded what the law required.”

The Supreme Court’s approach also drew criticism from advocates like Allison Harris, Director of the Home Preservation Project at the Pro Bono Resource Center of Maryland, who called the ruling “disappointing” and said the current system “cannot be construed as a ‘fairly conducted’ process.”