The Supreme Court issued an important property-rights decision this month in Pung v. Isabella County, a case that tested the limits of the Court’s landmark 2023 decision in Tyler v. Hennepin County. While the Court unanimously rejected a property owner’s attempt to recover the fair market value of a foreclosed home, the decision is far from a complete victory for local governments. Indeed, the Court left open several potentially significant avenues for future challenges to tax-foreclosure practices.
For property owners and practitioners in the takings field, Pung provides both a warning and an opportunity. The Court declined to expand the Fifth Amendment’s tax foreclosure protection beyond the established precedent of surplus sale proceeds, but it also signaled that tax foreclosures conducted through unfair procedures may still face constitutional scrutiny.
The Dispute
The Pung family lived in a Michigan home that had been assessed for tax purposes at approximately $194,400. After a lengthy dispute with local tax authorities regarding a principal-residence exemption, the family ultimately owed just $2,241.93 in property taxes. Isabella County initiated foreclosure proceedings, obtained title to the property, and sold it at a public auction for $76,008.
For property owners and practitioners in the takings field, Pung provides both a warning and an opportunity. The Court declined to expand the Fifth Amendment’s tax foreclosure protection beyond the established precedent of surplus sale proceeds, but it also signaled that tax foreclosures conducted through unfair procedures may still face constitutional scrutiny.
Initially, the County retained all of the sale proceeds. After the Supreme Court’s decision in Tyler v. Hennepin County, however, it became clear that governments may not keep the surplus value generated by tax foreclosures. The lower courts therefore held that the Pungs were entitled to receive the difference between the auction price and the tax debt—approximately $73,766. Even still, the Pungs argued that this was not enough.
Their position seemed straightforward: the government had taken a home worth roughly $194,400 but compensated them based on a tax-sale price of only $76,008. Because tax auctions frequently produce depressed prices, they argued that the Fifth Amendment requires compensation based on fair market value rather than the amount realized at auction.
They also asserted that the government’s actions violated the Eighth Amendment’s Excessive Fines Clause.
The Supreme Court’s Holding
In an opinion authored by Justice Alito, the Court rejected both arguments, holding that when a tax foreclosure sale is fairly conducted, the constitutional measure of compensation is the actual sale price obtained at auction—not the property’s hypothetical fair market value.
According to the Court, the relevant historical tradition stretches back centuries. English and American governments have long used tax sales as a method of collecting delinquent taxes. Throughout that history, governments generally were required to return the “surplus” generated by a sale—that is, any amount exceeding the tax debt and associated costs. The Court found little evidence that governments were historically required to compensate property owners for the difference between auction value and market value.
As a result, the Court concluded that the Takings Clause guarantees the former owner’s right to the surplus generated by the sale, but not a right to recover the property’s fair market value.
The Court emphasized that Tyler itself focused on the owner’s right to surplus proceeds. In the Court’s view, the historical rule has always been that the government may satisfy the debt through sale of the property, keep what is owed, and return any excess proceeds. Nothing more is constitutionally required.
As a result, the Court concluded that the Takings Clause guarantees the former owner’s right to the surplus generated by the sale, but not a right to recover the property’s fair market value.
Why the Court Rejected the Fair-Market-Value Theory
A central theme of the majority opinion is practicality. The Court expressed concern that adopting the Pungs’ theory would fundamentally alter the government’s ability to collect delinquent taxes.
Tax sales often produce prices substantially below what might be obtained through traditional real-estate marketing. If governments were constitutionally obligated to make up the difference between auction value and market value, tax foreclosures could become financially untenable.
The Court viewed that result as incompatible with centuries of accepted tax-collection practice. In the majority’s view, a constitutional interpretation that would effectively eliminate a longstanding governmental power is strong evidence that the interpretation is incorrect.
The Court offered a hypothetical example. Suppose a property worth $100,000 secures a tax debt of $20,000 and sells at auction for $60,000. Under the traditional rule, the government keeps $20,000 and returns the remaining $40,000 to the owner. Under the Pungs’ proposed rule, however, the government would owe the owner $80,000—meaning the tax sale would result in a net loss to the government.
The Court viewed that result as incompatible with centuries of accepted tax-collection practice. In the majority’s view, a constitutional interpretation that would effectively eliminate a longstanding governmental power is strong evidence that the interpretation is incorrect.
The Most Important Part of the Decision May Be What the Court Did Not Decide
Although property owners lost on the principal issue presented, perhaps the most important aspect of Pung is the issue the Court deliberately left unresolved.
During merits briefing and oral argument, the Pungs advanced a series of arguments challenging the fairness of the foreclosure process itself. Among other things, they contended that the County seized more property than necessary to satisfy the debt and could have pursued less drastic collection measures.
Although property owners lost on the principal issue presented, perhaps the most important aspect of Pung is the issue the Court deliberately left unresolved.
The Supreme Court declined to address those arguments because they were not squarely presented in the Takings Clause question on which certiorari was granted. Instead, the Court remanded the case and expressly allowed the Sixth Circuit to determine whether those procedural arguments had been properly preserved.
However, the majority acknowledged that governments could potentially violate the Constitution through “blatantly unfair procedures,” including sham sales or other practices inconsistent with historical tax-sale traditions. The Court simply declined to define the boundaries of fairness in this case. That reservation may prove highly significant in future litigation.
Justice Sotomayor’s Concurrence
Justice Sotomayor, joined by Justices Gorsuch and Jackson, wrote separately to underscore this point. She emphasized that the Court’s decision should not be read as defining what constitutes a “fairly conducted” tax sale. Nor should it be understood as endorsing any particular formulation advanced by the parties.
Her concurrence highlights an important reality: the constitutional rules governing fair tax-foreclosure procedures remain largely undeveloped. Future cases will likely focus on that question.
Justice Thomas’s Concurrence: A Roadmap for Future Property-Rights Claims
Justice Thomas’s separate opinion may attract the most attention from property-rights advocates. Although he agreed that the case was properly remanded, he expressed serious concerns about what happened to the Pung family.
His opinion begins with a detailed recounting of the facts, emphasizing that the family repeatedly prevailed in litigation against local tax authorities and that the disputed tax assessment appeared highly questionable. He noted that the County ultimately took a home valued at approximately $194,400 to collect a debt of only $2,242.
More importantly, Justice Thomas argued that historical tax-foreclosure practice may have contained safeguards that were absent here. According to Justice Thomas, historical authorities often required governments to pursue personal property before seizing real property.
More importantly, Justice Thomas argued that historical tax-foreclosure practice may have contained safeguards that were absent here. According to Justice Thomas, historical authorities often required governments to pursue personal property before seizing real property. Likewise, historical tax-sale procedures frequently required officials to sell only as much property as necessary to satisfy the debt. Even further, the historical amount of damages owed for disregarding these practices was often fair market value.
In light of these practices, Justice Thomas believes these historical limitations may have served as important protections for property owners and may explain how tax foreclosures coexisted with constitutional protections, including the Takings Clause, for private property.
Justice Thomas also highlighted concerns regarding notice and the dramatically reduced auction price obtained by the County. He suggested that historical practice demanded strict compliance with procedural safeguards and that departures from those traditions could support constitutional claims. Although these observations did not command a majority of the Court, they provide a potential roadmap for future challenges to aggressive tax-foreclosure practices.
What This Means for Property Owners
The immediate takeaway from Pung is clear: property owners generally cannot recover the difference between a property’s fair market value and the amount obtained at a properly conducted tax sale. The constitutional entitlement recognized in Tyler remains the right to recover surplus proceeds—not the right to receive fair market value.
At the same time, Pung should not be read as a broad endorsement of every tax-foreclosure regime currently in operation. The Court repeatedly emphasized the importance of fairness. It expressly left open the possibility that certain procedures could violate constitutional protections even if surplus proceeds are returned. Several Justices also signaled interest in examining whether historical limits on tax-collection powers remain relevant today. For property owners facing foreclosure, those unresolved questions may become the next frontier in takings litigation.
From a property-rights perspective, Pung is a mixed result. The Court declined to expand Tyler into a broader fair-market-value rule. Yet it also refused to close the door on constitutional challenges to unfair tax-foreclosure procedures. Instead, the Court left substantial room for future litigation.
Looking Ahead
From a property-rights perspective, Pung is a mixed result. The Court declined to expand Tyler into a broader fair-market-value rule. Yet it also refused to close the door on constitutional challenges to unfair tax-foreclosure procedures. Instead, the Court left substantial room for future litigation concerning notice, proportionality, alternative collection methods, and the historical limits on governmental authority to seize private property.
As those issues continue to develop, property owners and practitioners should pay close attention. While Pung narrows one path to recovery, it may ultimately open several others.
