The argument next week in Pung v Isabella County asks the court to consider the constitutionality of the longstanding practice of tax foreclosures sales. This is one of those cases that would be tremendously important if it came out one way and will probably sink without a trace if it comes out the other. My guess, unless the justices want to call into question the basic architecture of foreclosure sales in every jurisdiction in the country, is that they’re not going to accept Pung’s challenges to this process.
Governments at many levels in the United States impose taxes, often (as here) based on the value of real estate. If taxes go unpaid long enough, eventually the jurisdiction will collect the taxes by force, selling the land in question at an involuntary sale – that sale “forecloses” the taxpayer’s right to resolve the dispute with a voluntary payment and permanently transfers the land from the taxpayer to the purchaser at the sale.
Michael Pung, the executor of the estate of his nephew Timothy, fell into a dispute with Isabella County, Michigan, about real estate taxes owed on Timothy’s home. When Pung declined to pay the taxes in question because he did not believe these were owed, the county filed suit, and eventually in 2018 a state court entered a final judgment concluding that Pung owed the taxes in question (about $2,200) and setting the property for foreclosure. More than a year later, the county sold the property at a public auction that produced about $76,000. Eventually, after some changes in local law caused by the Supreme Court’s decision in Tyler v Hennepin County, Pung received the “surplus” foreclosure proceeds – the excess of the $76,000 over the amount of taxes owed to the county.
Pung responded by filing suit in federal district court, claiming that the sale was a government taking because the sales price at the sale was so far below the fair market value of $200,000. The lower courts rejected that argument, but the justices granted review.
Pung’s basic argument is that the just compensation requirement in the takings clause of the Fifth Amendment requires that he receive the monetary equivalent of the property that the state has taken from him. Because the state took property worth about $200,000 and only gave him credit for the $76,000 sale price, he argues that the Constitution requires the state to pay him the difference. For good measure, Pung also argues that the process has levied an excessive fine in violation of the Eighth Amendment.
Isabella County (joined by several states) responds that the procedures Pung challenges are routine and have been used at all levels of government for centuries. They contend that nothing in the takings clause jurisprudence suggests that the concept of “fair market value” is required in this context. To the contrary, when the court has examined foreclosure sales in recent years it has reasoned that property subject to a foreclosure sale is simply “worth less” because it is subject to the “strictures” of that process. Those cases suggest, Isabella County argues, that the relevant question is whether the sale was conducted properly – with adequate notice and a free opportunity for competitive bidding – aspects of the sale that Pung does not challenge. From that perspective, the Constitution offers no basis for intervention absent some problem with this specific sale.
To be sure, the justices have invalidated some aspects of state foreclosure law, as they did a few years ago in Tyler v Hennepin County. Specifically, Tyler held that the Constitution requires the foreclosing jurisdiction to turn over the surplus sale proceeds to the debtor. But that decision held that the Constitution requires local governments to follow the procedures that always have applied in private foreclosure sales, and for that matter in tax sales in the great majority of American jurisdictions. Pung received the surplus proceeds here, so Tyler may prove of little help in that regard.
We’ll know a lot more next week, but I think Pung will have a difficult time persuading the justices to side with him.
