The Supreme Court on Tuesday sent a dispute over the compensation that a Michigan county was required to pay to a homeowner after it sold his house because of unpaid taxes back to the lower court. In an opinion by Justice Samuel Alito, the court agreed in Pung v. Isabella County, Michigan, with the county that for purposes of determining whether the homeowner had received “just compensation,” the baseline was the price that the county “obtained in a tax sale” – as long as that tax sale was “fairly conducted.”
The case began when Isabella County foreclosed on the home owned by Michael Pung’s late nephew, Timothy, for whose estate Pung served as the executor. The state contended (although Pung disputed) that he owed $2,200 in taxes. After the house was sold at auction for $76,000, Pung received the difference between that price and the taxes owed. The buyer later sold it again for much more, and Pung contended that he was entitled to receive approximately $192,000 – the difference between the second sale price (which he says was the fair market value) and the taxes that he owed.
Pung argued that the county’s failure to pay him that larger amount violated both the Fifth Amendment’s takings clause (which bars the government from taking private property for public use without paying “just compensation”) and the Eighth Amendment’s ban on excessive fines. The U.S. Court of Appeals for the 6th Circuit rejected his argument, and on Tuesday, the Supreme Court largely agreed.
In his 12-page opinion, Alito emphasized that, “for hundreds of years, English and American law have allowed the seizure and sale of property as a tax-collection method, provided that the government return any surplus proceeds to the debtor. Our Nation’s history and this Court’s precedent thus establish the principle that when the government seizes and sells property to collect a tax debt, the owner is entitled to the surplus sale proceeds—nothing less, and nothing more.”
Alito noted that in the Supreme Court, Pung had argued that the procedures that the county used to sell the home were unfair. Although “the parties appear to agree that a jurisdiction might violate the Constitution if it employs blatantly unfair procedures, such as by conducting a sham sale or needlessly delaying a tax sale while real estate prices crashed,” they did not agree “on what constitutes a fair process.” The justices declined to resolve this question themselves, instead sending the case back to the 6th Circuit for it to consider them.
