Supreme Court Holds That Delinquent Taxpayers Are Not Entitled To Recover Their Property’s Fair Market Value

Pung v. Isabella County, No. 25-95

Today, the Supreme Court unanimously held that “just compensation” under the Fifth Amendment is measured by the proceeds from a tax sale of foreclosed property, as long as the sale is fair, not the property’s fair market value.

Background

The Pungs owed $2,241.93 in property taxes on their house in Isabella County, Michigan. After they did not pay, the County initiated foreclosure proceedings and sold the Pungs’ house at public auction to pay off the tax debt. The property sold for $76,008—far less than its assessed tax value of $194,400. The County initially kept all of the proceeds.

Michael Pung sued, arguing that the County violated the Takings Clause of the Fifth Amendment and the Excessive Fines Clause of the Eighth Amendment. He claimed he was entitled to the fair market value of the property less the taxes owed. The district court granted partial summary judgment for Pung on his Fifth Amendment claim, holding that he was entitled to surplus proceeds from the tax sale (i.e., the sales amount minus the taxes owed). But it rejected Pung’s argument that the just compensation award should be calculated based on the property’s fair market value instead of the lower tax-sale price. The Sixth Circuit affirmed.

Issue

Whether taking and selling a property for far less than the hypothetical market value to satisfy a tax debt violates the Fifth Amendment’s Takings Clause or the Eighth Amendment’s Excessive Fines Clause.

Court’s Holding

In an opinion authored by Justice Alito, the Supreme Court held that the constitutional baseline for “just compensation” under the Fifth Amendment’s Takings Clause is the price obtained at public auction, not the hypothetical fair market value—at least when the auction procedure is fair in light of the country’s history of tax sales. The Court also held that the Eighth Amendment’s Excessive Fines Clause does not require the government to return more than the surplus proceeds from a tax sale.

On the Fifth Amendment issue, the Court began by reaffirming its recent decision in Tyler v. Hennepin County, 598 U.S. 631 (2023), where it held that the government can seize and sell property from delinquent taxpayers but must return any surplus proceeds. The Court then looked to the long practice of seizing and selling property to satisfy tax debts and concluded that, historically, the sale price—not the hypothetical fair market value—constituted “just compensation.”

The Court expressed concern that Pung’s fair-market-value theory would make tax sales “untenable” by forcing the government to pay out losses to delinquent taxpayers instead of collecting unpaid taxes. And it viewed the system of tax sales as particularly “just” because property owners can generally avoid them.

The Court declined to address several of the Pungs’ arguments about the supposedly faulty procedures the County employed in its tax sale, explaining that those issues were outside the scope of the question presented. But in so doing, the Court noted that even the parties agreed that “blatantly unfair procedures, such as by conducting a sham sale or needlessly delaying a tax sale while real estate prices crashed,” would present constitutional problems.

On the Eighth Amendment issue, the Court pointed to its precedent holding that forfeiture of property is a “fine” only if it serves at least “in part to punish,” which can be shown with historical evidence. Austin v. United States, 509 U.S. 602, 610 (1993). The Court found no such historical evidence of that here. The Court rejected Pung’s theory that anything less than fair market value constitutes an excessive fine, finding that it has no basis in history or precedent.

Justice Sotomayor filed a concurrence, joined by Justices Gorsuch and Jackson, emphasizing that the Court did not define the contours of a “fair auction” and leaving that issue to the court of appeals on remand.

Justice Thomas, joined by Justice Gorsuch, concurred in part and concurred in the judgment. He wrote separately to provide his “preliminary view[]” that Isabella County’s procedures departed from general principles of just compensation and historical limits on tax-foreclosure sales.

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