(The Center Square) – The U.S. Supreme Court will hear a case on Wednesday over whether tax foreclosure sales are constitutional.
Pung v. Isabella County involves the rights of a foreclosed upon homeowner to receive equity back when their home is sold over a tax foreclosure. The dispute comes between the Pung family and Isabella County, Michigan, over real estate taxes on a home the Pungs owned.
A judge determined that the Pungs owed about $2,200 in taxes and allowed the government to auction off their home for $76,000. An individual purchased the Pungs’ home from the government and later sold it for $195,000.
The Pung family sued the government and claimed the sales price was far below the house’s fair market value. Michael Pung, who brought the lawsuit against the county, argued the takings clause of the Fifth Amendment requires that he receive the monetary equivalent of the property that the state has taken from him.
“The deep history of the takings clause and property rights [comes from] the Magna Carta and early colonial practices and the Northwest Ordinance,” said Jay Carson, senior litigator at the Buckeye Institute. “All of them have the same concept that the government can’t take any more than what is actually owed to it.”
The case builds from Tyler v. Hennepin County, where the U.S. Supreme Court ruled unanimously against a Minnesota county for seizing a 94-year-old woman’s home due to her $15,000 tax debt. The county kept the $25,000 profit from the sale, in violation of the takings clause, according to the high court.
The key difference in Pung v. Isabella County is that the Pung family received their surplus proceeds after the sale of the house.
Lawyers for Isabella County argued that the Pungs’ home was sold for less due to the tax burden owed by the family during the process.
“Property that must be sold within those strictures is simply worth less and is not ground for objection by the former owner,” lawyers for the county wrote to the high court.
However, the Pung family and Carson argued the government should owe payments based on a property’s fair market value rather than the value assessed during a foreclosure sale. They argue the county assessed the property’s fair market value to be around $200,000 despite selling it for less.
“The facts in this case where the subsequent purchasers turned around and sold it for that approximate value shortly thereafter speaks volumes to the underlying equity in this,” Carson said.
Carson said the unanimous decision in Tyler v. Hennepin County makes him feel hopeful that the court will side with the Pung family. He said governments should award foreclosed upon homeowners based on fair market value.
He predicted the justices may not rule on what standard should apply for the government in determining foreclosure payments but argued the case should go in favor of the Pung family.
“In this case, fair market value sure looks like it might be the best or most appropriate test to use,” Carson said.
The justices will hear arguments in the consequential foreclosure case on Wednesday and will likely issue a decision by July.
