Pung v. Isabella County, Michigan

    Issues

    When the government takes and sells a delinquent taxpayer’s property that is worth more than what the taxpayer owes, does the delinquent taxpayer get reimbursed according to the fair market value of the property, or according to what the government actually sold it for?

    Oral argument:
    February 25, 2026
    Court below:
    United States Court of Appeals for the Sixth Circuit

    This case asks how delinquent taxpayers should be compensated when their forcefully forfeited property is worth more than their underlying tax debt, and that forfeited property is auctioned off in a foreclosure proceeding. Petitioner Pung argues that he is entitled to compensation according to the true market value of the property because not doing so would be a taking without just compensation. Respondent Isabella County argues that the actual sale price is the correct benchmark, and any loss sustained by the delinquent taxpayer is within the bounds of the Fifth Amendment. Pung further argues that the government returning the difference between the unpaid tax and the actual sale price, rather than the fair market value of the property, to delinquent taxpayers is an excessive fine in violation of the Eighth Amendment. Isabella County counters that this case does not involve a fine, so Eighth Amendment protections against excessive fines do not apply. This case touches on important questions regarding economic consequences of tax delinquency and the impact of foreclosures on communities.

    Questions as Framed for the Court by the Parties

    1. Whether, after foreclosing on and selling a property to collect delinquent taxes, the government provides just compensation under the Fifth Amendment’s Takings Clause when it pays the former property owner the difference between the property’s auction sale price and the tax debt, even though it is significantly less than the fair market value of the property.

    2. Whether a government violates the Eighth Amendment’s Excessive Fines Clause when it forecloses on real property worth more than needed to satisfy a tax debt and pays the former property owner only the difference between the property’s auction sale price and the tax debt.

    Facts

    Michigan’s General Property Tax Act (“GPTA”) empowers local governments to levy property taxes, as well as allow exemptions to those taxes. One exemption to these property taxes is the Principal Residence Exemption (“PRE”), which allows a taxpayer to legally avoid a portion of their property taxes if they file the requisite affidavit certifying that they occupy the domain as their primary residence. If the requisite affidavit is not filed, or the PRE is denied, the taxpayer must pay the full amount. Local governments can initiate foreclosure actions if property taxes become delinquent without such a PRE. In Michigan, after a property is foreclosed on for tax delinquency, it is put up for auction. Before 2020, the property owner did not receive any surplus value back from the government if the foreclosed property was auctioned off for more than the owner owed in taxes. Since 2020, any surplus from the auction is required to be returned to the property owner. The Takings Clause of the Fifth Amendment of the United States Constitution requires just compensation for all private property taken by the state. The Excessive Fines Clause of the Eighth Amendment prohibits the government from imposing unduly harsh financial penalties on individuals.

    Timothy Pung owned a home in Union Township in Isabella County, Michigan, where he received a PRE from 1994 until his death in 2004. Timothy Pung’s wife, Donnamarie, lived in the home until she died in 2008. Afterwards, Timothy’s son, Marc, lived in the residence without filing for a new PRE. In 2010, the township retroactively denied a PRE on the property from 2007 to 2009 and did not apply a PRE to the 2010 and 2011 tax years. The Pungs successfully sued the township over the denial of the PRE for the 2007, 2008, and 2009 tax years in the Michigan Tax Tribunal. However, it was unclear whether the decision applied after the 2009 tax year. This caused the Pung residence’s property taxes to become delinquent in 2013, with unpaid taxes totaling $2,241.93. Because of the delinquent property taxes, the property fell to a final foreclosure judgment in 2015. Isabella County sold the Pung residence at auction for $76,008, well below its claimed market value of $194,400. Isabella County kept all proceeds from the auction sale.

    In 2018, Michael Pung, Timothy’s uncle and estate representative (“Pung”), sued Isabella County in the United States District Court for the Western District of Michigan (“Western District”) under the Fifth and Eighth Amendments, claiming that he was entitled to the surplus value of the sale of the home as calculated by the fair market value minus the total debt from delinquent property taxes. The Western District granted partial summary judgment for Pung, holding that Isabella County was liable under the Fifth Amendment but leaving the question of damages unanswered. The Western District then transferred the case to the United States District Court for the Eastern District of Michigan, which held that Pung was only entitled to the surplus as calculated by the price sold for at auction minus his tax debt. The United States Court of Appeals for the Sixth Circuit affirmed, reasoning that the best evidence of the property’s value was the price at auction, and therefore that calculation of the surplus was the most accurate measure of damages. The Sixth Circuit also rejected Pung’s contention that calculating the surplus based on the sale price at auction was an excessive fine as defined by the Eighth Amendment.

    On July 22, 2025, Pung petitioned the Supreme Court of the United States for a writ of certiorari, which was granted on October 3, 2025.

    Analysis

    JUST COMPENSATION UNDER THE FIFTH AMENDMENT

    Pung asserts that “just compensation” for government takings under the Fifth Amendment requires that the property owner be returned to the same economic position that they started in before the taking. According to Pung, this requirement is only satisfied when the owner receives an exact equivalent to the value of his property that was taken. Pung argues that because the taking occurred when the government acquired fee simple title to the property, Isabella County became liable for the value of the property at that exact moment, which could only be accurately calculated by assessing the property’s fair market value. Pung contends that Isabella County, however, erroneously represents the taken property interest as the hypothetical value of a future foreclosure sale, rather than Pung’s real equity in the home. Pung also contends that the foreclosure auction format results in less than the claimed compensation amount of the “owner’s loss,” which Pung asserts is the amount guaranteed under the Fifth Amendment. According to Pung, when the government makes the affirmative choice to foreclose and auction off a property to satisfy a much smaller tax debt, they are responsible for the negative consequences of that action. Pung contends that if the government were allowed to consider any auction price as satisfying the duties to homeowners under the Takings Clause, it could theoretically sell a home for significantly less than its true worth, leading to an unconstitutional taking. Thus, according to Pung, the government only provided partial compensation for his lost property interest.

    Isabella County responds by contending that surplus proceeds from a foreclosure auction are “just compensation” and within the constitutional limits as defined by the Fifth Amendment. Isabella County argues that it is ahistorical to assert that taxpayers are entitled to the fair market value of property taken to satisfy government debt. Isabella County looks to English common law, which says that the repayment of surplus is determined by the surplus of what was actually sold by the government. Further, Isabella County asserts that the Supreme Court has never concluded that the owner of taken property is entitled to its fair market value in many of its previous cases, which are now binding precedent. Isabella County argues that Pung’s fair market value of the property is purely hypothetical, especially when considered in the context of a forced sale like a foreclosure, and thus cannot be “just compensation” required by the Fifth Amendment. Further, according to Isabella County, it is typical for a foreclosed property to diminish in value. Isabella County asserts that no matter how Pung’s property interest is defined, the surplus proceeds of the auction sale are “just compensation” for the government taking.

    EXCESSIVE FINES UNDER THE EIGHTH AMENDMENT

    Pung asserts that in calculating the just compensation for the taking to be the auctioned price of the home, the lower courts wrongfully allowed Isabella County to weigh an excessive fine against him. Pung asserts that Isabella County acknowledged the value of the home was $194,400, yet only paid him $76,766, effectively creating an economic sanction over 50 times the size of the original tax bill. According to Pung, this excessive fine is in direct conflict with the language and aims of the Eighth Amendment. First, Pung clarifies that the forfeiture of his property meets the definition of a fine, because it is an economic penalty for noncompliance with the law. Next, according to Pung, the sheer difference between the value of the property taken and the actual tax debt owed to the government clearly illustrates that Pung’s total loss of value is punitive and unconstitutional under the Eighth Amendment. Further, Pung asserts that the structure of the tax-foreclosure procedures inherently deflates the price paid at auction, as home financing is not available for prospective buyers and so they cannot pay the true, higher fair market value at auction. Pung also contends that prospective buyers cannot inspect or tour homes up for foreclosure auctions, increasing the property’s risk as an asset and further limiting the potential price which could be returned as just compensation to the prior, delinquent owners. Thus, Pung contends that his six-figure economic loss over a hotly contested and unpaid tax bill when Pung was granted tax exemptions in the lower courts was unreasonable because the foreclosure had simple retributivist aims of deterrence and punishment. Pung’s disproportionate loss compared to the tax bill automatically makes the penalty constitutionally excessive, according to Pung. Pung also claims that his interactions with Isabella County in the events leading up to this case show that the county acted with excessive impunity, further underscoring this forfeiture as an excessive fine and grossly disproportionate penalty.

    Isabella County responds by asserting that the Excessive Fines Clause of the Eighth Amendment does not apply where Pung has already received surplus proceeds from the foreclosure sale. According to Isabella County, the receipt of the surplus proceeds is already greater than what the Eighth Amendment requires the county to provide. Additionally, Isabella County asserts that their seizure of Pung’s home cannot be both a taking and a fine, because they are mutually exclusive concepts. Isabella County contends that while the Takings Clause is meant to ensure owners receive correct compensation for losing property, the Excessive Fines Clause is intended to keep fines proportional to a person’s culpability. Additionally, Isabella County maintains that since the aim of foreclosure is not punitive, foreclosure does not fall under the scrutiny of the Excessive Fines Clause. Isabella County asserts that its foreclosure of Pung’s property was remedial, and not punitive, in part because the underlying offense is not criminal, and therefore cannot be a “fine.” Isabella County contends that the purpose of the GPTA is to provide local governments with the power to collect delinquent taxes, rather than additional fines to punish delinquent taxpayers. Isabella County points out that the foreclosed properties are often worth less than the debt owed, further supporting that the procedure works without punitive intent. Further, even if the foreclosure procedure was a fine, Isabella County claims that the Eighth Amendment only requires fines to be non-excessive, a standard that the county has already met through the sum given to Pung from the foreclosure sale.

    Discussion

    THREATS TO PROPERTY RIGHTS AND THEIR ECONOMIC CONSEQUENCES

    The Cato Institute and four law professors (collectively “Cato Institute”), in support of Pung, argue that the current tax foreclosure auction system threatens property rights by allowing state and local governments to use flawed tax foreclosure proceedings which benefit the government at the expense of property owners. The Cato Institute points out that local governments have no incentive to secure higher sale prices for property owners because the government only benefits from the portion of the price used to compensate the government for the delinquent amount–not the full amount. Thus, the Cato Institute contends that a local government’s incentive is to quickly organize auctions to obtain sales for quicker receipt of compensation for delinquent debts, even if it is for below the actual value of the property. The Chamber of Commerce of the United States, in support of Pung, also argues if governments can impose disproportionate fines unconnected to criminal proceedings, such as during a foreclosure sale, it can chill economic activity by causing businesses and investors to abstain from competitive activity in fear of those disproportionate fines. The Chamber of Commerce highlights that excessive fines against businesses can hurt employers, consumers, and the economy as a whole.

    The Michigan Association of Counties and other Michigan municipal organizations (collectively “MAC”), in support of Isabella County, respond that imposing a fair market value rule would generate extensive litigation and disrupt taxation across the country. MAC asserts that the risk of litigation over the hypothetical fair market value of foreclosed properties would lower the bidder amounts, leading to smaller proceeds and eventually budgets for the county governments. The New York Association of Towns and other New York local government official organizations (collectively “NYAOT”), in support of Isabella County, also contend that prohibiting the use of foreclosure auctions to enforce taxes would require local governments to use less efficient and more expensive enforcement methods, hurting local governments and property owners. NYAOT points to its own framework and procedures for conducting public auctions, and it argues that its specific notice and process requirements result in an auction price which represents the fair market value of the property and fulfills constitutional requirements.

    IMPACT ON COMMUNITIES

    The National Consumer Law Center (“NCLC”), in support of Pung, argues that vulnerable populations are disproportionately impacted by property tax foreclosures which do not provide market value to the homeowner. NCLC points out that vulnerable groups like older adults and low-income communities of color are often more susceptible to tax delinquency. NCLC asserts that foreclosure sales hurt vulnerable populations by destroying their home equity and causing housing instability. AARP and the AARP Foundation (collectively “AARP”), in support of Pung, point out that older homeowners are especially impacted by tax foreclosure because they often rely on home equity as a safety net or to finance large expenses like health care and home maintenance. AARP also contends that older adults are more vulnerable to tax delinquency because they may rely on fixed incomes or have large medical expenses. 

    The National Tax Lien Association (“NTLA”), in support of Isabella County, responds that the current tax foreclosure system is used to fund schools, infrastructure, emergency services, and public health services. NTLA highlights that delinquent taxpayers still take advantage of the services that their taxes should be funding, but the tax burden is shifted to compliant taxpayers. NTLA emphasizes that tax foreclosure auctions are necessary to fund community services and restore distressed properties, and that imposing a fair market requirement would destabilize the current tax system. The Local Government Legal Center and other local government associations (collectively “LGLC”), in support of Isabella County, also point out that the current property tax regime is a significant component of city budgets, and assert that foreclosure sales are a necessary backstop to enforce taxation.

    Conclusion

    Authors

    Written by:    Matt Charles and Sam Schoenberg 

    Edited by:      Esther In

    Additional Resources