The Supreme Court has ruled in favor of the defendant in the landmark excess equity case of Pung v. Isabella County, according to an opinion released on June 23.
In the near-unanimous opinion delivered by Associate Justice Samuel Alito – in which all justices joined except Associate Justice Clarence Thomas, who joined in part – the court ruled that when a tax sale is conducted fairly and according to longstanding procedures, the constitutional measure of compensation is the actual auction price. The former owner is then entitled to the surplus of sale proceeds after unpaid taxes and costs are subtracted.
The court rejected the plaintiff’s argument that governments must pay owners the difference between the auction price and what the property might have sold for in an ordinary market transaction.
Plaintiff Michael Pung, and the Pung estate, via legal representation from the Pacific Legal Foundation, had also argued that selling a property worth much more than the debt amounted to an excessive fine. The court rejected that argument, finding no historical or constitutional basis for requiring payment of fair market value under the Excessive Fines Clause.
Alito clarified the ruling by arguing that, for centuries, governments have been granted the authority to seize and sell property to collect taxes. Further, the traditional rule of these seizures and sales has been that the owner receives the surplus from the sale, not the property's theoretical market value.
The court’s published opinion also expressed concern about practical consequences, reasoning that if governments had to guarantee fair market value, many tax sales would become economically unworkable because governments could end up paying more to delinquent taxpayers than they recovered from the sale.
When combined with the precedent set by the prior Tyler v. Hennepin County ruling, this decision in the Pung case establishes that, while governments must return surplus proceeds to former property owners after a tax foreclosure, those owners are not required to be made “whole” based on fair market value.
However, the Pung estate's case against Isabella County isn't entirely concluded, as some procedural questions raised during arguments were remanded back to the Sixth Circuit Court of Appeals as part of the Supreme Court's June 23 ruling.
Check back with The Legal Description for more details on this ruling.
The Legal Description sat in on oral arguments for Pung vs. Isabella County in February. Here is a look at some of our coverage:
U.S. Supreme Court considers what is ‘just compensation’ in tax foreclosure sales
Tuesdays With Mary: A Temple, A Tortoise, and a Case to Watch
NTLA webinar breaks down Pung v. Isabella ahead of Supreme Court arguments