Supreme Court sides with county on tax sale of foreclosed home

The Supreme Court ruled Tuesday in favor of a Michigan county that auctioned off a family’s foreclosed home for $76,008 when the family owed less than $2,242 in property taxes. However, by remanding the case, it allowed the family to argue its case again in a lower court challenging how the home was sold, but without setting a Supreme Court precedent.

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The justices heard oral arguments in the case, Pung v. Isabella County, in February. The Pung family owed $2,241.93 in real-property taxes to the county. The local tax authorities in Isabella County initiated foreclosure proceedings and sold their home — which was assessed at $194,400 for tax purposes — for $76,008 at a public auction. It later fetched $195,000 when the buyer resold the home on the market less than 18 months after the auction.

Michael Pung sued the county in federal court, and a district court granted him partial summary judgment on his Fifth Amendment claim. The court held he should receive only the surplus proceeds from the tax sale — that is, the difference between the sale price and the tax debt — but not the property’s fair market value. The district court also rejected his claim under the Eighth Amendment’s Excessive Fines Clause. The Sixth Circuit Court of Appeals affirmed that decision. 

In a 9-0 decision Tuesday, the Supreme Court mostly agreed.

“The proper baseline for measuring ‘just compensation’ following a fairly conducted tax sale is the auction sale price, not the property’s hypothetical fair market value; Isabella County did not violate the Eighth Amendment’s Excessive Fines Clause by failing to compensate the taxpayer for his property’s fair market value,” wrote Justice Samuel Alito in the majority decision vacating and remanding the case to the lower court. 

Justice Clarence Thomas joined the majority opinion except for one part and wrote an opinion concurring in part and concurring in the judgment, which Justice Neil Gorsuch joined except in one part. Justice Sonia Sotomayor wrote a concurring opinion, joined by Gorsuch and Justice Ketanji Brown Jackson. 

The justices noted that for hundreds of years, English and American law have allowed the seizure and sale of property as a tax-collection method, provided that the government return any surplus proceeds to the debtor. 

“Fair market value is not an appropriate measure of just compensation in this context because owners can generally avoid tax sales,” said the majority opinion. “Pung’s fair-market-value theory would impose unprecedented burdens on jurisdictions that wish to collect unpaid taxes and might well make tax sales impractical. Under Pung’s rule, a tax sale would often net the government a loss, paid out to the delinquent taxpayer himself, rendering tax sales infeasible as a debt-collection mechanism. That Pung’s novel interpretation of the Takings Clause would eliminate this longstanding practice is strong evidence that his interpretation is incorrect.”

The Supreme Court did not try to resolve any of Pung’s contentions that the procedure the county followed in seizing and selling his property was unfair, but said the appeals court could address those arguments on remand. 

The Supreme Court also rejected Pung’s argument that the county violated the Eighth Amendment’s Excessive Fines Clause by failing to compensate him for his property’s fair market value. 

“Pung lacks precedent or historical evidence suggesting that a tax sale which is fairly conducted in light of our nation’s history would violate the Eighth Amendment,” said Alito. “In addition, imposing Pung’s fair-market-value rule under the Eighth Amendment would entail the same drastic consequences as imposing the rule under the Fifth Amendment.”

“The court today rightly rejects petitioner Michael Pung’s argument that anytime a government forecloses and sells an individual’s home to cover an outstanding tax debt, the Fifth Amendment Takings Clause requires the government to pay the home’s ‘hypothetical fair market value,” wrote Sotomayor, joined by Gorsuch and Jackson. 

Thomas expressed more sympathy for the Pungs’ position than the other justices, noting that the Pungs had paid the original tax bill in full and only owed an additional tax imposed later by a tax assessor that was in dispute. A state court had ruled at one point that the county had not provided the Pungs with sufficient notice of the foreclosure proceeding, he noted. “What Isabella County did to the Pungs was wrong, and, on my initial view, likely unconstitutional,” he wrote.