The U.S. Supreme Court will consider on Feb. 25 how the compensation a local government owes to someone whose property was foreclosed on for non-payment of taxes should be calculated when the home is sold.
Specifically, the justices will look 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.
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 the sale proceeds that far exceeded the tax she owed. Critics call this practice “home equity theft.”
The case now before the high court, known as Pung v. Isabella County, Michigan, 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 that Pung’s estate filed with the Supreme 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 determination 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.
After the tax payments fell into arrears, 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, awarding 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 was the property’s fair market value, and that the lower court rulings violate Supreme Court precedents interpreting the Fifth and Eighth Amendments.
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 … damages calculation,” the petition said.
The county argues in a brief that Supreme Court precedent requires it to pay the estate only the surplus proceeds from the tax foreclosure sale, not the fair market value of the property.
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.
The Supreme Court is expected to issue a ruling on the case by the end of June.
This article by Matthew Vadum appeared Feb. 25, 2026, in The Epoch Times.