WASHINGTON – The Supreme Court on June 23 gave a Michigan family another chance to fight back after their home was sold by the government for about 40% of its value to pay a relatively small tax bill.
The justices sent the case back to the lower courts to consider whether the family can challenge the fairness of the way the government sold their home in foreclosure.
That’s a partial victory for Michael Pung and his family as it keeps their challenge alive. But it does so without setting the larger precedent the family had sought on how much compensation homeowners should get from foreclosure sales – an issue related to what critics call “equity theft.”
Sold for $76,008, Flipped for $195,000
In the case from Michigan’s Isabella County, the Pung family lost their ranch-style home to cover $2,242 in disputed and unpaid taxes.
The county government sold the place for $76,008 at a public auction − before the buyer flipped it for $195,000.
A 2023 Supreme Court ruling meant Isabella County had to give the family what was left after selling the house and settling the tax bill, but their attorneys argued that’s not enough. They said compensation should be based on the seized home’s fair market value, noting it had been appraised at nearly $200,000.
“This court has repeatedly confirmed that when the government takes property, the constitutional calculus begins with its fair market value,” Philip Ellison, the family’s attorney, said when the court debated the case in February.
What’s a Fair Price? Court Looks at the Fifth Amendment’s ‘Takings Clause’
The constitutional issues involved included the takings clause in the Fifth Amendment, which bars the government from taking private property “without just compensation.” The Pungs also argued that property sold for a fraction of its value to cover a much smaller tax bill is an excessive fine under the Eighth Amendment.
Lower courts ruled against the Pungs, and the justices likewise resisted the idea that compensation should be based on the home’s fair market value.
That theory, Justice Samuel Alito wrote in the court’s opinion, would impose “unprecedented burdens” on local governments and could make tax sales impractical.
Both sides seemed to agree that the procedure a county uses for seizing and selling a house could be unfair in other ways. But they disagreed on what makes a process fair.
Because that issue was not fully raised in the family’s appeal, Alito said the lower court should now consider it.
AARP Advocated for Homeowners
The AARP, one of the powerful interest groups that had weighed in with filings supporting the family, noted that Oregon, Maine and Massachusetts require seized homes to first be marketed by a real-estate broker at fair market value.
But the Justice Department argued that while states have leeway to adopt a variety of procedures, all that’s required is that the property sale is conducted fairly. At a minimum, that means an auction must be public, properly advertised and competitive, Frederick Liu, a Justice Department attorney, said during oral arguments.
A low sale price alone is not enough to declare the auction was unfair, Liu said, but may be enough to warrant a court’s scrutiny of the process.
The Pung family, for example, complained that Michigan doesn’t allow potential buyers to inspect a property and must pay in cash within two hours after the auction ends – procedures they said unfairly depress the sale price.
After the Supreme Court’s 2023 ruling that the original property owner must receive leftover proceeds from a foreclosure sale, nearly every state amended its laws, according to the Pacific Legal Foundation.
But the libertarian public interest law firm – which was involved in both Supreme Court cases − recently identified ways it said Alabama, Arizona, Michigan, New Jersey and New York are engaging in “shadow equity theft.” Those include requiring property owners to file a claim with the government for any surplus proceeds from the tax sale. Homeowners may need to make that request even before the property is sold and the timeline for filing a claim can be compressed.
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