Supreme Court rules on Michigan home seized over $2,200 disputed tax debt

The U.S. Supreme Court on Tuesday unanimously sided with Isabella County, Michigan, rejecting a family’s claim that local governments must pay homeowners the full fair market value of property seized and sold in tax foreclosures rather than the lower price obtained at public auction.

In the 9-0 decision, the court ruled that under the Fifth Amendment, “the proper baseline under the Takings Clause is the price obtained in a tax sale, at least when the sale is fairly conducted in light of our country’s history of tax sales.”

Writing for the court, Justice Samuel Alito explained that “neither the Fifth nor the Eighth Amendment requires the government to compensate former owners based on the hypothetical fair market value of their property.”

The high court noted that creating a fair-market-value baseline would impose “unprecedented burdens” on local governments seeking to collect unpaid taxes, making these sales “impractical.”

MICHIGAN FAMILY SAYS COUNTY SEIZED HOME OVER TAX BILL THEY DIDN’T OWE — CASE NOW HEADS TO THE SUPREME COURT

“Under Pung’s rule, a tax sale to collect $20,000 in delinquent taxes would net the government a $20,000 loss—a loss paid out to the delinquent taxpayer himself,” Alito continued. “The possibility of such a perverse result would render tax sales infeasible as a debt-collection mechanism.”

The ruling comes amid a decade-long legal battle between Isabella County and the Pung family, over what they called “home equity theft.” Isabella County foreclosed on the family’s 3,000-square-foot home over a disputed $2,241.93 tax bill, subsequently selling the $194,400 property at auction for just $76,008. Michael Pung, acting as the personal representative of the estate, disputed the bill and brought the legal challenge on behalf of the family.

While the county eventually returned the surplus auction proceeds, the family argued the Constitution required “just compensation” based on the home’s actual worth, rather than a low-ball auction price that destroyed more than $118,000 in equity.

However, the court said on Tuesday it would not “resolve any of Pung’s newfound contentions that the procedure the County followed in seizing and selling his property was unfair.”

The court ultimately vacated and remanded the case, sending it back to the U.S. Court of Appeals for the Sixth Circuit to reconsider those procedural claims.

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Larry Salzman, an attorney with the Pacific Legal Foundation (PLF) who represented the Pung estate in court, told Fox News Digital they were disappointed by today’s ruling but eager for the opportunity to keep fighting the case in the lower courts.

“It’s disappointing because we believe that, at least in some cases, fair market value is demanded by the Constitution, and we’re happy to see that at least Justice Thomas and Gorsuch agree on that point, but it’s satisfying that we get to continue fighting the case for another day, that the case is no longer final and that the Pungs have an opportunity to remedy the harms that were done to them,” Salzman said.

In a separate opinion, Justice Clarence Thomas, joined by Justice Neil Gorsuch, took aim at the county’s aggressive actions for such a minor debt. 

“What Isabella County did to the Pungs was wrong, and, on my initial view, likely unconstitutional,” Thomas wrote.

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Isabella County, joined by 10 other states and the District of Columbia, argued that the U.S. Supreme Court should reject Pung’s “fair-market-value theory,” asserting it has “no foothold in history or precedent.”

In court filings, the county said Michael Pung repeatedly refused to submit the paperwork needed to maintain the home’s tax exemption, declined to appeal the tax assessment and failed to pay the disputed tax bill despite receiving years of notices and opportunities to resolve the matter. The county emphasized that Pung could have redeemed the property, challenged the assessment at foreclosure hearings or sold the home himself before foreclosure, but “took none of those off ramps.”

Isabella County previously argued the Fifth Amendment’s “just compensation” requirement was satisfied when the estate received the surplus proceeds generated from the public auction after the tax debt was paid. The county contended that foreclosure properties are inherently worth less because they are sold under the constraints of a forced public sale and argued the Supreme Court’s 2023 ruling in Tyler v. Hennepin County only requires governments to return excess sale proceeds — something Isabella County says it ultimately did in the Pungs’ case.

Isabella County did not immediately return Fox News Digital’s request for comment on Tuesday.