The Supreme Court on Oct. 3 agreed to consider how the compensation a county government owes to someone whose property was foreclosed on for non-payment of taxes should be calculated.
In the case, the nation’s highest court is expected to decide if governments may retain the surplus equity of homes sold for back taxes beyond the amount of the taxes owed.
The case comes two 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 the sale proceeds that far exceeded the tax she owed. Critics call such a practice “home equity theft.”
The Supreme Court decided on Oct. 3 to examine a case brought by the estate of a Michigan man whose home a county foreclosed on because the estate allegedly owed $2,241.93 in taxes. The county sold the home at auction for $76,008 and then the purchaser quickly sold it for $194,400, the figure the estate argues was its fair market value at the time.
The court did not explain its decision to grant the petition in Pung v. Isabella County, Michigan. No justices dissented.
The case goes back to 1991 when Timothy Scott Pung bought a house in Union Township, Isabella County, Michigan, for $125,000. He occupied the property as his principal residence and each year, claimed a Principal Residence Exemption from some local property taxes under state law, which reduced his annual property tax bill, according to the petition the estate filed on July 22 with the nation’s highest court.
Fourteen years later he died, leaving behind his wife and two children. In the subsequent years, the township’s tax assessor retroactively denied the credit for the property for the 2007 through 2011 tax years. Pung’s widow challenged the assessor’s ruling before the Michigan Tax Tribunal and won. In 2012, the assessor revoked the credit for that tax year, leading to an unpaid tax bill of $2,241.93 “for a tax that was never actually owed,” the petition said.
A federal district court awarded the estate almost $74,000, representing the difference between what was owed in taxes and the price the county took in from the sale. However, the estate argues it should have been paid the difference between the taxes owed and the property’s fair market value of $194,400.
When the county failed to pay that amount, it ran afoul of the Fifth Amendment’s ban on taking property without providing “just compensation” and the Eighth Amendment’s prohibition of excessive fines, the petition said.
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.
The county filed a brief on Aug. 13, urging the Supreme Court not to take up the case. It said that in April 2017, the Michigan Court of Appeals upheld the foreclosure.
The widow filed suit in the federal district court, arguing that the county violated due process rights. Those claims were rejected by the courts and “are not at issue in Pung’s petition to this Court,” the brief said.
However, while the lawsuit was pending, the Michigan Supreme Court ruled in Rafaeli LLC v. Oakland County that former owners of a property foreclosed on for tax arrears retain an interest in the “surplus proceeds” remaining after the tax-foreclosure sale.
The U.S. District Court for the Western District of Michigan ruled in favor of the estate while “leaving open all the questions of damages.” After that, the court transferred the case to the U.S. District Court of the Eastern District of Michigan, the brief said.
That court ruled in favor of the estate, citing Rafaeli, but found the estate was entitled to the “surplus proceeds” from the tax-foreclosure sale, along with “interest from the date of the foreclosure sale.” The court rejected the estate’s argument that it should be compensated for any “equity interest” related to the fair market value of the property, the brief said.
The estate appealed to the U.S. Court of Appeals for the Sixth Circuit, which held that the Fifth Amendment had been violated but rejected the estate’s Eighth Amendment argument, citing precedents restricting the application of the amendment to payments made as “punishment” for an offense.
The estate’s arguments “defy centuries of legal development that have been reiterated and confirmed by this Court, the Sixth Circuit and the Michigan Supreme Court,” the brief said.
Meanwhile, in the petition, the estate argues the lower courts erred when they used the “artificially depressed auction sale price rather than the property’s fair market value as the starting point for its damages calculation.”
The lower courts’ rulings violate Supreme Court precedents interpreting the Fifth and Eighth Amendments, the petition said.
If the action the county took doesn’t qualify as a taking under the Fifth Amendment, its retention of the equity in the home constitutes an excessive fine that goes beyond the debt owed, the petition said.
Oral argument in the case has not yet been scheduled.
This article by Matthew Vadum appeared Oct. 6, 2025, in The Epoch Times.