Supreme Court Sides With Michigan County in Tax Foreclosure Dispute

A Michigan family whose home was foreclosed by the county over unpaid taxes argued that they should have been paid the fair market value of their home.

The Supreme Court in Washington on April 22, 2026. Madalina Kilroy/The Epoch Times

The U.S. Supreme Court on June 23 ruled unanimously that a Michigan county does not have to compensate a homeowner whose home was sold for unpaid taxes based on the property’s hypothetical fair market value.

The case came three years after the Supreme Court ruled unanimously in Tyler v. Hennepin County, Minnesota, that a county wronged a grandmother when it forced the sale of her condominium over an unpaid tax debt and kept sale proceeds that far exceeded the tax she owed. Critics call this practice “home equity theft.”

In the case at hand, Pung v. Isabella County, Michigan, the Supreme Court looked at whether the U.S. Constitution requires local governments to compensate homeowners based on the fair market value of a property seized for tax arrears, or merely refund the surplus left over from a government auction.

In 1991, Timothy Scott Pung bought a house in Isabella County, Michigan, for $125,000. Fourteen years later, he died, leaving behind his wife and two children, who continued to live in the house.

In 2012, a township tax assessor revoked a tax credit, leading to an unpaid tax bill of $2,241.93. The Michigan courts declined to reverse the finding of tax liability or halt the foreclosure.

The county sold the home for $76,008, and it was quickly resold for $600 over its official assessed value of $194,400. A federal district court ruled the county violated the Constitution by taking more than it was owed, and awarded the estate $73,766, representing the difference between what was owed in taxes and the price the county took in from the sale.

In January 2025, the U.S. Court of Appeals for the Sixth Circuit ruled the county’s failure to pay full fair market value was neither a formal taking requiring compensation under the Fifth Amendment nor an excessive fine under the Eighth Amendment.

The Fifth Amendment states that “private property [shall not] be taken for public use, without just compensation.” The Eighth Amendment bans cruel and unusual punishment, as well as excessive fines.

Justice Samuel Alito wrote the court’s majority opinion in the case.

“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,” he said.

“Our Nation’s history and this Court’s precedent thus establish the principle that when the government seizes and sells property to collect a tax debt, the owner is entitled to the surplus sale proceeds—nothing less, and nothing more.”

“The proper baseline under the Takings Clause [of the Fifth Amendment] 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,” Alito wrote.

“Following a tax sale, the Eighth Amendment Excessive Fines Clause does not require the government to return more than the surplus proceeds. Neither the Fifth nor the Eighth Amendment requires the government to compensate former owners based on the hypothetical fair market value of the property.”

The Supreme Court vacated the judgment of the Sixth Circuit, sending the case back to that court “for further proceedings consistent with this opinion.”

Justice Clarence Thomas declined to join part of the opinion. He wrote a separate opinion concurring with the result, which Justice Neil Gorsuch joined in part.

Thomas questioned the county’s decision not to try “to collect anything less than the entire property—such as the Pungs’ personal goods, their car, or a portion of their land.”

“Instead, for a mere $2,242 debt, the County proceeded immediately to the seizure of the Pungs’ entire $194,400 home.”

“So, although the County invokes history and tradition to justify its departure from the fair-market-value rule, its actions here seem to have departed from that history and tradition,” Thomas said.

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

Justice Sonia Sotomayor wrote a concurring opinion, which Gorsuch and Justice Ketanji Brown Jackson joined.

Sotomayor said the court was right to reject Pung’s argument that whenever a government forecloses and sells off an individual’s home to satisfy an outstanding tax debt, the Takings Clause compels the government to pay the home’s “hypothetical fair market value.”

Surplus proceeds can constitute just compensation, assuming the auction sale is “fairly conducted in light of our country’s history of tax sales,” the justice said, repeating a phrase Alito used.

Joe Bishop-Henchman, executive vice president of the National Taxpayers Union Foundation, said in a statement that the home involved in the case was sold in a “sham auction.” The foundation filed a brief in the case.

The Sixth Circuit will have to figure out what a “fair sale” is, he said.

Larry Salzman, a vice president at the Pacific Legal Foundation, which was part of the Pung family’s legal team, said the Sixth Circuit will now have to consider whether the sales process the county used was “fairly conducted.”

He said in a statement that Thomas and Gorsuch noted that it was “likely” that the sales process violated the Constitution.

Isabella County attorney Matthew T. Nelson hailed the new ruling, saying the high court had rejected a “challenge to the constitutionality of the process governments have relied on for centuries to collect property taxes that remain unpaid for years.”

“We are confident the process Isabella County followed in this case exceeded what the law required,” Nelson told The Epoch Times.