In Pung V. Isabella County, the Supreme Court Further Weighed in on the Constitutional Issues with Tax Sales

This week, the Supreme Court issued a ruling in Pung v. Isabella County, Michigan, further weighing in on the Fifth Amendment issues arising from Tax Sales. In Pung, a property with $2,241.93 in unpaid taxes in Central Michigan was sold in a tax sale for $76,008 even though the property was assessed for tax purposes at $194,400 and sold 18 months later for $195,000. The Court held that the Pung family was entitled to a refund of the surplus proceeds based on the $76,008 tax sale value and not the $195,000 “fair market value” of the property.

Pung follows on the heels of Tyler v. Hennepin County (2023) which held that any surplus proceeds from a tax sale over the amount of back taxes owed must be returned to the property owner following the sale of the property in a tax sale. The owner of the property in this case argued that, because properties sell for significantly less at tax auction than they would on the open market, the owner should be entitled to a refund based on the fair market value of the property.  Justice Alito, writing in a 9-0 decision, held in Pung that the tax sale process is deeply rooted in history and tradition and does provide a fair value for a property, even if that value is less than the property would hypothetically get if sold by a realtor. If the Court were to decide the opposite way, it would be unlikely that counties such as the Chicago “Collar Counties” could continue to hold tax sales as they would need to pay significant amounts to the owners of the property following the auction.

The case still leaves questions for states such as Illinois where tax sales are common. In particular, the Court states that a tax sale price might not be the proper indicator of fair market value if the tax sale procedure is “blatantly unfair” without exactly telling future courts what a “blatantly unfair” procedure might be.  This sets the table for future cases reviewing whether there is proper notice of a tax sale, unnecessary delays in the sale and potentially even the requirement that buyers pay cash up front might impact whether a tax sale is considered valid. This is unlikely to be the last time that the Supreme Court weighs in on tax sale issues. Owners subject to tax sales and purchasers of properties sold at auction should consult with an attorney to determine how their rights might be impacted by this most recent ruling. Timing is critical when resolving tax sales.