Twelve years after the state Supreme Court unanimously ruled theft by foreclosure unconstitutional, Michigan counties continue to exploit loopholes to drain the home equity of their residents.
The U.S. Supreme Court later this month will hear a case out of Isabella County that could finally slam the door on the ability of local tax collectors to turn relatively small tax disputes into big profits for their governments.
Mark and Tia Pung are fighting to recover roughly $118,000 they lost when their $200,000 home outside Mount Pleasant was seized by the county and sold at auction to settle a $2,242 tax delinquency the couple contends they shouldn’t owe.
They are asking the high court to limit asset seizures to the amount of taxes actually owed ― a principle previously established by the Michigan court ― and force counties to sell the property at fair market value.
“It feels very predatory,” Tia Pung says of the process that led to the loss of her home. “I don’t feel they were trying to help us in any way. They were trying to steal our property.”
Pung v. Isabella County, which the Supreme Court will hear on Feb. 25, has its roots in a precedent-setting Michigan case out of Oakland County. Oakland foreclosed on a rental property belonging to Uri Rafaeli, who owed just $8.41 in taxes. The county sold the house for $24,500 and kept all of the proceeds.
The state Supreme Court ruled the amount of the sale above the debt must be returned to the taxpayer. And that should have settled the matter in Michigan.
But in 2020, the Legislature put in place a new, highly complex process for the former owners to recover their surplus equity, a process most of them have not been able to successfully navigate.
The foundation calls this shadow equity theft and says it is abetted in Michigan by the strict deadlines and inflexible formatting rules lawmakers adopted after Rafaeli.
A study from the Pacific Legal Foundation, which assisted Rafaeli and is helping the Pungs, found that between 2020 and 2023, roughly 19,000 properties were foreclosed in Michigan and more than $125 million in equity was taken from residents, while just $26 million in surplus proceeds was returned to property owners.
The Pungs lost their home, which was owned by the estate of Mark Pung’s late father, when they fought the denial of a principal residence exemption on the house. Losing the exemption inflated their annual property tax bill by about $1,600. They won an appeal the first year it was denied. But then the county stripped them of the exemption again, and when the family, which had never missed a tax payment, didn’t pay the higher amount the county foreclosed on their home. By then, interest and penalty had raised their unpaid obligation to $2,242.
“I didn’t understand why we lost the exemption,” says Tia Pung. “I went to the treasurer’s office in 2018 before the sale and asked, ‘Can I please pay these taxes?’ and they said it was past the redemption period.”
Tia Pung had moved into the 3,000-square-foot home on a wooded lot when the couple married in 2015. Mark Pung had lived in the house most of his life, she says. The couple did extensive renovations. The assessed value was $194,000 when the county seized the home, and that’s roughly what the buyer sold it for 18 months after he purchased it at auction for $76,000.
The $76,000, minus the $2,240 tax bill, is all the Pungs got out of the home.
“How do they justify for selling it so cheap?” asks Tia Pung, who works in real estate. “If I would have listed it, it would have sold for much, much more.”
Isabella County’s defense in the case argues the Pung’s fair-market-value theory has “no foothold in history or precedent.”
The county contends under the 5th Amendment to the Constitution all that is required of a government is to return the surplus proceeds from a public auction, without regard to the property’s true value.
A lawyer for the county told Fox News Digital that Mark Pung’s uncle, the executor of the estate, “received repeated reminders of his obligation over the course of seven years. (He) had repeated opportunities to pay the property taxes, file an affidavit or file an appeal, yet he failed to take any of these steps.”
The Pacific Legal Foundation argues that taking property worth much more than a tax debt—and then selling it for far less than its true value—amounts to an excessive fine under the 8th Amendment. It also argues the tax debt was never actually owed, since the property qualified for the principal residence exemption, which was denied by Isabella County.
Mark and Tia Pung, with their son, have moved on to a new home in the county. But the sting of how they were treated by their local government remains.
“How can they take someone’s biggest asset for such a small debt,” she says. “Why not stick a lien on the property? Why not garnish our wages? Their first and only option was to take our home.”
Nineteen states have passed laws limiting shadow property theft by their local governments. Regardless of how the Pung’s case is resolved. Michigan should become the 20th.
Nolan Finley’s columns appear in The Detroit News. Sign up for the Nolan Out Loud morning report.
This article originally appeared on The Detroit News: Finley: Michigan’s theft of home equity faces Supreme Court challenge
Reporting by Nolan Finley, The Detroit News / The Detroit News
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