The Supreme Court of the United States ruled on June 23, 2026, in the case of Pung v. Isabella County, Michigan, that the amount a government receives from a tax foreclosure auction is the proper measure of "just compensation" for property owners. This decision affects homeowners who face foreclosure due to unpaid property taxes, clarifying that they are entitled only to the surplus proceeds from such sales, not the property's fair market value.
Michael Pung, representing the estate of his late father, Timothy Scott Pung, challenged Isabella County's foreclosure of their home over a tax debt of $2,241.93. The home, assessed at $194,400, was sold at auction for $76,008. Pung argued that the county should have compensated him based on the fair market value of the property, but the court ruled otherwise, emphasizing the historical context of tax sales.
Background
The Pung family had a long history of property ownership in Isabella County, Michigan. They faced a tax dispute with local authorities when a tax assessor denied them a principal residence exemption. After winning in a tax tribunal, they still owed a small amount in taxes. When they failed to pay, the county initiated foreclosure proceedings.
Despite the family's attempts to resolve the tax issue, the county proceeded with the foreclosure, ultimately selling the home at a public auction. Michael Pung filed a lawsuit in federal court, claiming violations of the Fifth and Eighth Amendments. The District Court ruled that he was entitled to the surplus from the sale but not the fair market value of the home. The Sixth Circuit Court of Appeals affirmed this decision, leading to the appeal to the Supreme Court.
The Ruling
The Supreme Court, led by Justice Samuel Alito, ruled that the proper baseline for measuring "just compensation" in tax sales is the auction sale price, not the fair market value. The court stated, "The baseline for measuring just compensation in the tax-sale context is therefore the sale price, not the property’s hypothetical fair market value, at least when the sale is fairly conducted in light of our country’s history of tax sales."
The court also rejected Pung's argument under the Eighth Amendment, stating that the failure to compensate based on fair market value does not constitute an excessive fine. The ruling emphasized that the longstanding practice of tax sales does not violate constitutional protections.
Impact
This ruling clarifies the rights of property owners facing tax foreclosure. It establishes that the government is only required to return surplus proceeds from a tax sale, not the property's fair market value. This decision may influence how local governments conduct tax sales and manage unpaid taxes, potentially making it easier for them to collect debts without incurring losses.
Additionally, the ruling reinforces the historical precedent that has allowed governments to conduct tax sales as a means of collecting unpaid taxes. It may deter future challenges to tax sale practices based on claims for fair market value compensation.
What's Next
The case has been sent back to the lower court for further proceedings regarding any procedural fairness issues raised by Pung. There may also be implications for similar cases in the future, as this ruling sets a clear standard for how compensation is determined in tax foreclosure situations.