The U.S. Supreme Court has rejected a Michigan family’s argument that it was cheated out of money in a forced tax sale of a home in Isabella County in a case closely watched by advocates for homeowners’ constitutional protections nationwide.
In an opinion written for a unanimous court, Justice Samuel Alito said the Pung family was entitled to the proceeds from the tax sale beyond the taxes Isabella County officials said were owed on a home in Union Township near Mount Pleasant, they were not due an additional amount based on the perceived fair market value of the property.
“Pung’s fair-market-value theory would impose unprecedented burdens on jurisdictions that wish to collect unpaid taxes and might well make tax sales impractical,” Alito wrote. “Under Pung’s rule, a tax sale would often net the government a loss, paid out to the delinquent taxpayer himself, rendering tax sales infeasible as a debt-collection mechanism.”
But Alito’s opinion made clear that only necessarily holds as long as the tax sale is “fairly conducted.” In a separate opinion concurring with the overall judgment, Justices Clarence Thomas and Neil Gorsuch raised doubts as to the manner in which the county applied an additional tax bill to the Pungs after a lengthy legal back-and-forth and could have taken less drastic measures than taking title to a house and selling it for less than half its assessed value of $194,400.
As it was, Isabella County sold the property for $76,008 at a public auction after having taken title to the home over a disputed $2,241.93 tax bill in 2018; less than 18 months later, the new owner sold it again for $195,000.
The case was brought by the family of Timothy Scott Pung, who purchased the ranch-style home in 1991 for $125,000. After Pung died in 2004, ownership transferred to others in his family, but in 2010, the Union Township tax assessor claimed they weren’t eligible for a tax exemption on it as a primary residence and charged them back taxes. The Pungs eventually won their dispute over that change but a tax assessor ultimately, in 2012, assessed a $2,241.93 bill anyway.
It was that disputed bill which the Pungs refused to pay that led to the tax auction sale of the property and the lawsuit. While the county initially moved to keep all the proceeds from the tax sale, it eventually restored to the family $73,766 claimed beyond the amount of the taxes purportedly owned, consistent with a Minnesota case decided in 2023.
But the Pung family argued by not basing the proceeds it received on the fair market value of the property rather than the auction price, the county’s action amounted to either an unconstitutional taking of property under the Fifth Amendment or an unconstitutionally excessive fine under the Eighth Amendment.
The court declined to go that far.
“The question presented here is whether the government must pay more when the sale price falls below the property’s hypothetical fair market value. In other words, is the constitutional baseline for ‘just compensation’ the actual tax-sale price or the price that someone would pay for the property in a hypothetical open-market transaction?” Alito wrote. “We conclude that the proper baseline under the Takings Clause (of the Fifth Amendment) is the price obtained in a tax sale, at least when the sale is fairly conducted in light of our country’s history of tax sales.”
The justices declined to say, however, what specifically constitutes a “fair process” in determining “just compensation,” suggesting an appeals court might wish to do so based on the lower court record in the case.
This story has been updated with new information.
Contact Todd Spangler: tspangler@freepress.com. Follow him on Twitter@tsspangler.
This article originally appeared on Detroit Free Press: Supreme Court: Michigan family not owed fair market proceeds on tax sale
Reporting by Todd Spangler, Detroit Free Press / Detroit Free Press
USA TODAY Network via Reuters Connect
By Todd Spangler, Detroit Free Press | USA TODAY Network
