The Supreme Court struggled Wednesday to deliver justice to a family whose home was seized and sold by a local county at well below the estimated market value to cover a small tax debt.
The Pung family owed a $2,240 tax debt on their family home, and Isabella County in Michigan seized it. Even though the home was estimated at about $195,000, it sold in a foreclosure action for just $76,000, leaving the family out nearly $120,000 in value they felt they deserved.
Tough luck, said the county, which said the fair market value is what the home went for at auction — the amount the county actually collected from the sale — and it would be unfair to taxpayers to ask them to make up the difference.
Court members were sympathetic to the family, saying the process used to foreclose on their home seemed unfair.
“They’re fighting over a $2,400 tax debt that at least two courts said wasn’t owed, and yet they plowed ahead and got a price that was half the value of the property,” said Justice Sonia Sotomayor. “At some point, doesn’t the Constitution have something to say?”
But she also wondered what the court could do about it.
She said that as long as the auction itself was open and fair, it seemed to be one firm way to determine a home’s market value — regardless of any previous estimate.
Chief Justice John G. Roberts Jr. said that until a home is sold, the value is a guess.
“You don’t know what it is. One way to find out is to have a fair sale on the open market,” he said.
But Philip Ellison, lawyer for the Pung family, said the auction is only one piece of evidence. He said those who go through foreclosure and a sale to pay a tax bill should be allowed to challenge the sale price — and whether it truly provided “just compensation” for the government’s taking of the property — in court.
“Taking a six-figure home to punish over a small four-figure tax constitutes a fine,” he told the justices.
The court has been friendly in recent years to property owners in “takings” disputes, which are cases where the government seizes a property.
The Constitution requires the government to pay fair compensation for the property. But setting that value is tricky.
In 2023, the justices ruled in favor of a 94-year-old woman who saw her county seize and sell off her condo to pay off a tax debt, then keep the surplus of $25,000.
In Wednesday’s case, Matthew T. Nelson, the lawyer for the county, acknowledged the Pung family was owed the surplus but said the government isn’t required to strategize how to maximize the family’s profits.
“The takings clause does not require compensation to the owner for owner-created reductions to the property value,” he said. “That would be unjust to the government and to the public.”
Frederick Liu, a Justice Department lawyer who argued that the case should be sent back to lower courts for more development, said foreclosure sales will usually come in below the estimated market value
He said if the court requires counties to go through extra steps to make sure properties sell at or close to the estimated value, it would upend the way states operate.
“It would spell the end of tax sales,” he said.
In the case before the justices, the Pung family argued that the entire process was a mess.
They pointed out that several arbiters said there was no valid tax debt in the first place, but the county went ahead anyway. Then the sale was delayed more than a year, pushing it further away from the actual taking and skewing what might have been the correct price.
After the home sold for just $76,000, the buyer then turned around and resold the home the next year for the original $195,000 estimated value. The county had also been taxing the home on an assessed value of $194,000.
Justice Amy Coney Barrett compared the county to Inspector Javert from “Les Miserables,” saying the pursuit of the tax seemed to be extreme.
“It does seem there’s some unfairness there,” she said.
But Justice Ketanji Brown Jackson pointed out the family could have headed off the whole saga by selling the home itself. She said once the home went into tax foreclosure, the county’s only interest was in getting enough money to cover its tax debt.
To do otherwise would turn the county into “Mr. Pung’s real estate agent,” she said.
“If Mr. Pung wanted to get the maximum value of the house to cover that debt he could have sold it himself and gotten the fair market value,” she said. “I’m worried about suggesting he can come back after the fact and say ’No, you didn’t do enough to get the maximum price.”
Mr. Ellison countered that takings law “doesn’t turn on moral fault.”
• Alex Swoyer contributed to this report.
