The U.S. Supreme Court on Feb. 25 seemed to struggle with a family’s claim that a county unfairly held onto the equity built up in their Michigan home after selling the property for unpaid taxes.
During the oral argument, several justices questioned the family’s contention that it was entitled to recover the fair market value of the home that was sold at a government auction minus the taxes owed.
The case comes 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.
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 Pung’s estate filed with the Supreme Court.
Fourteen years later, he died, leaving behind his wife and two children, who continued to live in the house. In 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. The Michigan courts declined to reverse the finding of tax liability or halt the foreclosure, the petition said.
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, the petition said.
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.
The estate argues in the petition that it should have been paid the difference between the taxes owed and $194,400, which it says is the property’s fair market value, and that the lower court rulings violate Supreme Court precedents interpreting the Fifth and Eighth Amendments.
At the oral argument on Feb. 25, the estate’s attorney, Philip Ellison, said the Sixth Circuit’s rule that reduces just compensation to surplus auction proceeds was “wrong.”
The Supreme Court has repeatedly held that when the government takes property “the constitutional calculus begins with its fair market value” at the time of the taking, he said.
“An owner is owed just compensation, not inadequate compensation,” and governments should not gain a windfall from the sale, Ellison said.
The Constitution “forbids confiscatory losses … being imposed upon a former owner,” he added.
Justice Clarence Thomas told the lawyer that English and American legal traditions “seem to permit these sorts of foreclosures.”
Justice Sonia Sotomayor reiterated Thomas’s point, saying there is a “long, long history of tax foreclosures, of bankruptcy foreclosures.”
“We’ve even had a case on that where the issue is whether the proceeds from that foreclosure have to be fair market value, and we’ve said no,” she said.
“Give me a holding from a court in our 250-year history where we have said that the measure of damages on a tax foreclosure is fair market value, not the auction price,” she said.
Ellison replied, “There has not been that specific holding in this court’s history.”
Justice Ketanji Brown Jackson told Ellison she was “really struggling” with the idea that “just compensation is necessarily always tied to the fair market value.”
Even though the government’s only interest is in covering the tax liability, she said Ellison’s argument seems to “turn the government into Mr. Pung’s real estate agent with some sort of fiduciary duty to maximize … the value of this asset.”
If Pung wanted to obtain maximum value for the house to cover the debt, he could have sold it himself to obtain the fair market value, Jackson said.
The county’s attorney, Matthew Nelson, said the Sixth Circuit’s ruling was correct.
“Property sold … under compelled market conditions, is worth what the market pays for it under those conditions and not what the property would be worth in an idealized private sale,” he said.
By contrast, the estate’s fair market value theory “has no foothold in historic practice, this court’s precedents, or economic reality,” Nelson added.
Justice Amy Coney Barrett asked Nelson if the county would seize a property over a tax bill as small as $100.
Nelson said the county would take the property over such a small bill, which would mean the assessed value of the property was very small.
The Supreme Court is expected to issue a ruling in the case by the end of June.
This article by Matthew Vadum appeared Feb. 26, 2026, in The Epoch Times.
Photo: Official Photograph of Associate Justice Ketanji Brown Jackson taken by Supreme Court Photographer Fred Schilling, 2022.