SCOTUS stops short of complete sanction.
Last week, the Supreme Court held in Pung v. Isabella County that when a home is taken by the government and sold at a tax foreclosure auction, the sale proceeds satisfy the constitutional requirement for “just compensation” to the owner. This unanimous decision appears to be a loss for homeowners and property rights. But the justices stopped short of sanctioning the County’s actions, leaving some of the most important questions for another day.
As Justice Thomas said in his famous Kelo v. New London dissent, “property is a natural, fundamental right.” This right is protected by the Fifth Amendment, which prohibits the government from taking private property for “public use” without “just compensation.” As a legal matter, this case focused on whether just compensation in the context of a tax foreclosure is determined by the home’s fair market value rather than the amount it fetched at the foreclosure sale. On this issue, the justices say no, the auction price is the proper measure for this constitutional requirement.
Justice Alito, writing for the Court, reasons that history counsels against the petitioner’s argument: for centuries, English and American law have permitted the seizure and sale of property as a means of collecting taxes, provided that the government doesn’t keep the windfall and returns the surplus to the debtor. In light of this history of tax sales, Justice Alito concluded that the auction price is the proper baseline “at least when the procedure is fair”—a qualifier that is bound to be explored in subsequent litigation.
To the Pung family, the process was far from fair. The government took their $195,000 home due to a delinquent tax of approximately $2,200, which the Pungs assert they were neither notified of nor required to pay. The foreclosed home was their primary residence, yet the local tax assessor claimed they were subject to an additional property tax typically imposed for second homes. After a legal fight in a Michigan tax tribunal, which sided with the Pungs, the tax assessor nevertheless imposed the tax after the 2012 bill was sent, making it more likely that they would miss it. The legal hurdles continued, and ultimately the house was foreclosed at auction for about $76,000—less than 40% of its fair market value. The County even kept all of the sale proceeds until they were required by a federal court to return them.
The County took extreme measures for a small problem. Legal doctrine aside, instinctively, a $2,200 tax debt doesn’t seem to justify the seizure and sale of a $195,000 home.
This is why the Court, while unanimously siding with the County on the question of just compensation, was careful to provide a path forward for the family. Justice Alito wrote that the Sixth Circuit, on remand, may decide whether the procedural arguments can proceed. Likewise, Justice Sotomayor highlighted in her concurrence that she “does not read the Court’s opinion as identifying the contours of a fair auction,” and Justice Thomas wrote separately to argue that personal property or only part of the property should have been pursued first, rather than the entire home.
As Justice Thomas concluded, “What Isabella County did to the Pungs was wrong, and on my initial view, likely unconstitutional.” The government should not be able to add a covert tax and then foreclose an entire home for such a small debt. While the history of tax sales may justify the foreclosure, it must do so with fair procedures.
