A new case before the U.S. Supreme Court could soon clarify one of the most significant unresolved questions in property tax foreclosure law: what are former owners truly owed when their property is sold for unpaid taxes?
The case, Pung v. Isabella County, emerging from Michigan, may fill critical legal gaps left after the landmark Tyler v. Hennepin County decision.
The outcome has the potential to reshape how counties calculate surplus proceeds, how investors assess value, and how the Constitution protects property rights in tax sales across the country.
In the latest episode of the Tax Sale Insiders Podcast, Brian Seidensticker, CEO of Tax Sale Resources, sat down with legal experts Matt Abee and Jonah Samples to discuss how Pung could redefine fairness in tax foreclosure proceedings.
Filling the Gaps Left by Tyler v. Hennepin County
In Tyler v. Hennepin County, the Supreme Court held that a government cannot keep more from a tax sale than what is owed in taxes. That ruling established an important principle — but it left a major question unanswered: how should surplus value be measured and returned?
Pung v. Isabella County now puts that question squarely before the Court. At issue is whether the loss of a high-value property over a relatively small tax debt constitutes an “excessive fine” under the Eighth Amendment.
In simple terms, the Court will consider whether it is fair — or constitutional — for a taxpayer to lose a property worth nearly $200,000 to cover a debt of only $2,200.
The Facts Behind Pung v. Isabella County
Property owner Timothy Pung owed approximately $2,200 in delinquent property taxes to Isabella County, Michigan. Due to a misapplication, his property was foreclosed and sold at a tax auction for $76,000, despite having an estimated fair market value of $194,000.
Under Michigan’s former tax foreclosure laws, counties were allowed to retain the entire sale amount, leaving former owners with nothing — even when the sale price far exceeded the debt owed.
Pung challenges that outcome on constitutional grounds. The Supreme Court must now decide:
- How should “fair market value” be defined in a forced sale — the auction price or the property’s actual appraised value?
- Does the gap between tax debt and property value represent an excessive fine prohibited by the Eighth Amendment?
As Matt Abee explained, Tyler stopped short of defining these parameters. Pung now offers the Court the opportunity to establish how fairness and valuation should be balanced in tax foreclosure sales nationwide.
Michigan’s Legal Path to This Point
Jonah Samples provided historical context for how Michigan arrived at this pivotal moment.
Before 2020, Michigan law allowed counties to keep the full proceeds from tax sales, regardless of how much the property sold for compared to the debt owed. This practice was successfully challenged in Rafaeli v. Oakland County, when the Michigan Supreme Court ruled that counties could not retain surplus funds under state law.
Following Rafaeli, Michigan amended its statutes to allow former owners to file claims to recover surplus proceeds. However, these changes addressed only state-level property rights — not the broader federal constitutional questions concerning takings and excessive fines.
Subsequent cases, including Freed and Fox v. 27 Michigan Counties, further tested these issues but left critical questions unresolved. Pung v. Isabella County is the culmination of this progression and the first to bring the constitutional fairness of Michigan’s tax foreclosure system before the U.S. Supreme Court.
For additional background, review our detailed overview of Tax Deed Sales in Michigan.
What’s at Stake for the Tax Sale Industry
Although Pung originated in Michigan, the Supreme Court’s ruling will likely have nationwide consequences for how states handle surplus proceeds, property valuation, and constitutional fairness in tax sales.
If the Court determines that surplus funds must be measured based on fair market value rather than the auction sale price, states may need to overhaul their procedures. Potential outcomes include:
- New requirements for independent appraisals before or after foreclosure.
- Revised formulas for calculating and distributing surplus proceeds.
- Increased administrative complexity and potentially slower sales.
While such changes could add operational challenges, they could also improve fairness, transparency, and trust in the system — benefits for both property owners and investors.
For investors, Pung could directly affect bidding strategies, property valuations, and post-sale risks. If former owners gain stronger rights to reclaim surplus equity, investors may need to account for that in their return models.
However, as Matt Abee emphasized, clarity and consistency ultimately strengthen the marketplace. Predictable rules benefit all parties — investors, counties, and courts — by reducing uncertainty and fostering confidence in the tax sale process.
For further reading on how Michigan’s framework impacts investment strategy, see Tax Lien Investing in Michigan.
What Happens Next
The U.S. Supreme Court is expected to issue its decision in Pung v. Isabella County in 2026.
Depending on the ruling, counties may need to recalculate and refund surplus proceeds to former property owners. Investors may need to adjust valuation models and factor in additional risks. Former owners could gain new rights to recover equity lost through foreclosure.
The decision will also likely influence future litigation strategies and state legislative reforms related to property tax collection and foreclosure fairness.
As Brian Seidensticker observed during the Tax Sale Insiders discussion, this case is about more than one homeowner — it’s about establishing a fair and predictable standard for everyone operating within the tax sale ecosystem.
By clarifying how surplus proceeds are valued and whether disproportionate property losses violate the Constitution, the Court could set a new precedent that balances revenue collection with property rights nationwide.
Key Takeaways
- Pung v. Isabella County builds on Tyler v. Hennepin County by asking how surplus proceeds should be valued and what former owners are owed.
- The case questions whether losing a valuable property for a small tax debt violates the Eighth Amendment’s prohibition on excessive fines.
- Michigan’s previous law allowing counties to retain full sale proceeds led to state-level reforms and this federal constitutional challenge.
- The Supreme Court’s ruling could establish national standards for surplus calculation and fair market valuation.
- The tax sale industry is watching closely, anticipating greater clarity, consistency, and fairness in future property tax foreclosure processes.
As the tax sale industry awaits the Court’s ruling, Pung v. Isabella County represents a defining moment for both investors and policymakers. The outcome will determine not only how surplus equity is valued but also how fairness is defined within America’s property tax systems.
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