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Supreme Court Holds That the Sales Price at a Fairly Conducted Tax Foreclosure Sale – Not Fair Market Value – Is the Proper Amount of Just Compensation
In Pung v. Isabella County, No. 25-95, 609 U.S. ___ (2026), the U.S. Supreme Court held that when a local government forecloses on a home for unpaid taxes and sells it at a public auction, the proper measure of “just compensation” under the Fifth Amendment’s Takings Clause is the auction sale price – not the property’s fair market value – so long as the sale was fairly conducted. The decision resolves the open question from Tyler v. Hennepin County, 598 U.S. 631 (2023), which required governments to return surplus proceeds from tax sales but did not address whether the government must pay more when the auction price falls below fair market value. The Court’s answer in Pung: it does not.
The case arose when the Pung family owed $2,241.93 in delinquent property taxes on their home in Isabella County, Michigan. The county pursued foreclosure proceedings. Although the home had been assessed at $194,400 for tax purposes, it was sold at public auction for $76,008. Nearly eighteen months later, the auction purchaser resold the property for $195,000. Pung sued in federal court, asserting that just compensation required payment based on the property’s fair market value rather than the auction price. The district court granted Pung partial summary judgment on his Fifth Amendment claim, concluding he was entitled to the surplus proceeds (the difference between the $76,008 sale price and his $2,241.93 tax debt), but it rejected his claim that just compensation should be measured by fair market value of the property. The district court also rejected Pung’s Eighth Amendment Excessive Fines Clause claim. The Sixth Circuit affirmed. The Supreme Court reviewed both questions.
The Court held that the auction sale price is the proper baseline for just compensation for several reasons:
- For hundreds of years, English and American law have permitted the seizure and sale of property as a tax-collection method, provided that the government returns any surplus proceeds to the debtor. This historical practice supports using the auction price – not a hypothetical fair market value – as the constitutional baseline.
- Adopting a fair-market-value rule would impose unprecedented burdens on taxing jurisdictions and might well render tax sales impractical. Under the proposed rule, tax sales would often net the government a loss and the jurisdiction would be forced to compensate the owner at full market value even when the auction yielded far less, creating a structural disincentive to enforce and collect delinquent taxes.
- Fair market value is not an appropriate measure in this context because property owners generally can avoid tax sales altogether through refinancing, selling the property themselves on the open market, or simply paying the tax debt. Unlike a typical eminent domain taking – where the government forces the sale – a tax-sale owner retains meaningful control over whether the sale occurs.
The Court also held that, due to a lack of precedent or historical evidence suggesting that a fairly conducted tax sale violates the Eighth Amendment, there was also no viable claim for an excessive fine.
Notably, Pung does not close the door to additional compensation beyond the auction sale price entirely. The requirement that the sale must be accomplished through a “fair auction” leaves those procedural fairness issues for remand in this case and others. Going forward, property owners facing tax foreclosure sales should be aware that (1) the constitutional floor for just compensation in a tax sale is the auction price, not fair market value; (2) procedural fairness of the tax sale is a crucial issue; and (3) property owners may be able to protect themselves by, among other things, paying the delinquent taxes, refinancing, or selling the property on the open market to avoid the tax sale.
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