When the Supreme Court issues a unanimous judgement, usually the story is over.
After all, nine justices agreed on the outcome in Pung v. Isabella County, one of the most significant property rights cases since Tyler v. Hennepin County. The Court held that when property is sold through a tax foreclosure, the Constitution generally measures "just compensation" by the amount realized at the tax sale rather than by the property's fair market value. It is an important ruling for anyone involved in title, settlement, real estate law or local government.
Our editorial team takes a much deeper look at the decision, breaking down the concurring opinions and the practical implications for the title and settlement industry in the current edition of The Legal Description. It’s terrific reporting and I recommend its solid analysis to you. Here, I want to dive deeper into where this litigation goes next.
Earlier this year, editorial director Erica Peterson and I had the opportunity to attend oral arguments in Pung at the Supreme Court. Walking out of the courtroom, we wondered whether the justices were searching for a narrower path. Instead of attempting to resolve every constitutional issue raised by the case, they seemed interested in deciding the valuation question while sending the remaining questions about Isabella County's procedures back to the Sixth Circuit.
Looking back, I can see why we left the courtroom with that impression. More than once, the discussion shifted away from how to value the Pungs' property and toward whether the lower courts had fully addressed the constitutional questions surrounding Isabella County's procedures. Justice Sotomayor asked whether the government's proposed "minimums of fairness" were the only constitutional requirements. The Solicitor General responded that additional requirements could exist and acknowledged that a remand would allow preserved issues like those to be addressed. Justice Gorsuch likewise questioned whether the Supreme Court should resolve issues the Sixth Circuit had never fully considered.
Reading the opinion, I was struck by how much turned on two words: "fairly conducted."
The Court held that the amount realized at a tax foreclosure auction generally establishes just compensation after a fairly conducted sale. But it did not answer the obvious follow-up question. Was the process Isabella County used to seize and sell the Pungs' property constitutionally fair? That issue now returns to the Sixth Circuit.
Justice Thomas devoted nearly his entire concurrence to that question.
The majority looked to the nation's long history of governments selling property to collect delinquent taxes. Justice Thomas agreed that history is the proper place to look. His point was that history includes more than the government's authority to sell property. It also includes the limits historically placed on that authority. Before relying on those historical practices to measure just compensation, he suggested courts should determine whether the procedures used to seize and sell the property resemble the historical practices on which the majority relied.
His footnotes are especially revealing. Justice Thomas collected examples from around the country where substantial real estate interests were lost over comparatively modest tax obligations. He cited a West Virginia property reportedly worth $65,000 that was sold over an $80 tax lien, a Baltimore property valued at approximately $140,000 that was sold over a $2,500 tax debt, a Nebraska property worth roughly $59,000 that transferred to satisfy a $588 obligation, testimony describing tax lien sales in Washington, D.C., where properties with average assessed values exceeding $578,000 generated average tax sale prices of about $17,400, and an example of a property reportedly worth $300,000 that was sold to satisfy a $1,213 tax obligation. He used these examples to illustrate why he believes the procedures producing those results deserve closer constitutional examination.
Justice Thomas also returns to the County's own valuation of the property. Isabella County assessed the Pungs' home at approximately $194,400 for tax purposes. The property later sold at auction for about $76,000 to satisfy a tax debt of roughly $2,200, and it was subsequently resold for approximately $195,000. Justice Thomas then cites Great Northern Railway Co. v. Weeks, where the Supreme Court stated that "the principles governing the ascertainment of value for the purposes of taxation" are the same principles used in determining "just compensation." He follows that with Horne v. Department of Agriculture, writing that because the County had already assessed the property's fair market value, it "cannot now disavow that valuation" when a lower figure better serves its position.
Whether that principle ultimately applies in the tax foreclosure context remains to be seen; but it is one of the issues that is both interesting and highly relevant for day-to-day operations in title and settlement. And one Justice Thomas took an effort to point out and discuss in some detail.
Oh, there’s also another matter in the Pung case regarding fairness; there is some debate over whether the tax was ever rightfully owed in the first place. Justice Thomas closed his concurrence with a sentence that is difficult to overlook: "What Isabella County did to the Pungs was wrong, and, on my initial view, likely unconstitutional." So, odds are high, this is not yet the end of the matter.
Property rights litigation often evolves one question at a time. Tyler established that governments cannot simply retain a homeowner's surplus equity after satisfying a tax debt. Pung addresses how that remaining interest is generally measured. The next chapter may involve the procedures governments use to seize and sell property and whether those procedures reflect the historical constitutional protections on which the Court itself relied.
Whether Pung ultimately returns to the Supreme Court remains unknown for now. If it does, the next chapter may not focus on how much the Pungs should have received. It may instead focus on the question of whether the process itself satisfied the Constitution. One thing is for sure, we’ll keep it covered for you all along the way.
Until Next Time,
Mary Schuster
Chief Knowledge Officer
October Research, LLC
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