Nine justices, zero dissents. The Supreme Court’s ruling in Pung v. Isabella County settled the question the tax sale industry had been sweating: whether a public auction run by a local government is a reasonable means of determining a property’s value. On a recent episode of Tax Sale Insiders, Brian Seidensticker, CEO of Tax Sale Resources, walked through the decision with Brad Westover, Executive Director of the NTLA.
How a Michigan Tax Foreclosure Reached the Supreme Court
As Westover laid it out, Mr. Pung of Isabella County, Michigan had not paid his property taxes for over three years and continued not to pay until the county foreclosed. The property went to a tax deed auction. The investor who bought it spent 18 months renovating, then sold it through a real estate agent.
Mr. Pung passed away, and his heirs argued Isabella County should have gotten more money from that auction because the property was worth more. Somehow, some way, in Westover’s words, the dispute went up the chain all the way to the Supreme Court. It was the second case from this small world the Court has handled in the last three years, and Westover said the justices asked during oral argument how they were dealing with this again. He said they made it clear this is the last case on tax liens they will hear for the foreseeable future. TSR followed the case closely before the decision; the background is in our earlier breakdown of the Pung case.
What the Unanimous Ruling Decided
The question in front of the Court was whether a public auction is a reasonable means of determining value. The unanimous answer was yes. Westover said the decision reaffirmed a principle that has existed for centuries: when government sells property to collect unpaid taxes, the taxpayer is entitled to the surplus generated by the sale. That is the same principle from Tyler v. Hennepin County, Minnesota three years ago, a case TSR has tracked continuously since the decision.
“It’s pretty hard to get the Supreme Court to agree on anything, but when they come with something that’s unanimous, it’s pretty much a slam dunk that, yeah, this is fair, this is transparent, this is equitable,” Westover said.
He also drew a distinction the industry lives with daily: there is a difference between fair market value and market value from a sale. His argument on the facts was blunt. If Mr. Pung wanted more money, he had over 1,000 days to hire a real estate agent and sell the property himself. A tax deed auction gives buyers nothing like retail access. There’s a lock on the door, and potentially someone inside who is not happy you’re there.
Seidensticker’s read on the margin: it wasn’t close. Nine to nothing means no scenario where convincing one more justice in a future case flips the outcome. Westover called it established case law. A fair auction is a means by which you can determine value, and it does not have to be fought again.
The Near Miss for Real Estate and Title
Both men used the word scary, and neither was talking only about tax sales. A wrong decision, Westover said, would have rocked real estate and title generally.
“I think title insurance would probably halt because they’d say, well, we don’t know if they’re going to come back and claim that they’re owed more money,” Westover said.
Seidensticker explained why auction prices sit where they do. A retail buyer walks the property, prices the repairs, and bids accordingly. An auction buyer gets none of that access, so due diligence research runs on conservative assumptions, because nobody can keep buying this way while losing money. The price comes down to match the uncertainty.
Condition does the rest. Value degrades quickly when no one is taking care of a property. “I regularly see properties sell for nothing at auction because it’s too far gone,” Seidensticker said. Nobody bids, the county takes ownership, and the property ends up demolished.
Had the ruling gone the other way, every foreclosure auction would have carried the question Seidensticker posed: who is responsible for the difference between what a property sold for and what the county thought it was worth a year, or five years, earlier? TSR’s pre-ruling analysis walked through exactly what was at stake.
The Michigan Backstory Neither of Them Defends
Seidensticker was direct about the other side of the story. In his opinion, the case began with an error inside the county government over whether the property was homesteaded, and it should have been settled at the treasurer level years earlier. He recalled one of the justices, he couldn’t remember which, raising essentially the same point during oral argument.
He also called Michigan’s statutes some of the worst in the country for fairness to homeowners, because tax foreclosure in Michigan had turned into a profit generator for some counties. His example: foreclose on a property for $10,000, sell it for $90,000, keep the $80,000. Counties, he said, shouldn’t make this a profit center. After Tyler v. Hennepin came down, the Pung family did receive the overage the county had originally been holding.
Westover agreed Michigan needed to make things better. His test for any state’s process is whether it benefits four groups: the local government, the delinquent taxpayer, the current taxpayers (the 97 to 98 percent of America that pays on time, by his figure), and, in tax lien sale states, the investor. Most of the 29 states plus Washington, D.C. that run tax lien sales can answer yes for all four, he said. Not all of them.
As for the family, Westover suspected they probably got some bad legal advice and chose to dig in and fight until there was no fight left. He wished they had been able to work something out at the start. Still, he called the industry fortunate the case ran its course, because a U.S. Supreme Court decision means this question does not get litigated again.
The Next Fight: Property Tax Elimination
Seidensticker asked why property taxes have drawn so much fire lately, from court cases to Governor DeSantis proposing to eliminate them in Florida. Westover’s first answer: people see the revenue. Since COVID, property taxes went up almost 30 to 40 percent in a few years, way more than inflation, and he considers it a healthy exercise for every local government to ask what it is doing with the surplus.
Florida will vote on elimination in November. A constitutional amendment there needs 60 percent approval, a bar Westover called really high, and he does not believe it will pass. He relayed a figure the National Association of Counties shared at the NTLA’s conference: Florida’s sales tax would need to go from 6.5 percent to 24 percent to make up the difference. He called the current plan half-baked, and said cuts that deep would lead to teachers resigning and less effective police and fire rescue. Not fearmongering, in his words. Just a reality.
Ohio has a petition drive of its own. Seidensticker, who lives there, said the last time he looked it had over 300,000 signatures, and he thinks it needs 410,000 to get on the ballot. His own township runs entirely on property tax. The local journals in his area have run an article on the impact every month, listing the services that would not be there overnight, with no replacement income suggested.
Neither expects elimination to actually happen. All 50 states have property tax, Westover noted, and it is the largest revenue generator for the services that need to be done. His preferred lever already exists: the millage rate. When COVID shot values up, he argued, counties could have cut their millage rate in half and still covered their needs. Seidensticker’s version of the fix is some limitation on how fast the bill can climb when values spike, though he said he doesn’t know exactly what that solution looks like.
What This Means for You
The value question is closed. Both speakers said this particular piece of the process is not worth fighting again; Westover called it established case law that a fair auction is a means by which you can determine value.
The surplus rule from Tyler stands. When a government tax foreclosure sale generates more than the taxes owed, the surplus is owed to the taxpayer, and that principle now has two unanimous Supreme Court decisions behind it.
The ruling also validates how auction buyers already operate. You cannot get inside the property, so you bid on conservative assumptions, and the Court accepted the price that process produces as a reasonable measure of value rather than demanding someone answer for the gap to a hypothetical fair market number.
Watch the ballots. If you invest in Florida tax sales, the November measure needs 60 percent to pass and Westover predicts it fails, but it is on the ballot regardless. Ohio’s petition is still gathering signatures. Both speakers treat the pressure behind these pushes as real even though they consider elimination the wrong answer.
Court rulings and ballot measures like these move this market state by state. Subscribe to the Tax Sale Resources newsletter to get this coverage as it develops.
