Supreme Court Defends Tax Foreclosures, Dealing a Blow to Equity Rules

The Supreme Court on Tuesday rejected a bid to require local governments to compensate homeowners based on the full market value of homes seized and sold over unpaid taxes, delivering a setback to the movement against home equity theft.

But the justices also left open a consequential question that could shape the next phase of that fight: When is a tax foreclosure sale fair enough for its auction price to count as “just compensation”?

In a unanimous decision in Pung v. Isabella County, the court held that the Constitution generally measures compensation after a tax sale by the price the home actually fetches at auction—not by the higher amount it might have commanded in a conventional open-market sale.

That means owners whose homes are foreclosed and sold over unpaid taxes can’t automatically claim the difference between a tax-sale price and an appraisal, listing price, or later resale price just because the home was sold through a foreclosure auction.

“The proper baseline for measuring ‘just compensation’ following a tax sale is the auction sale price, not the property’s hypothetical fair market value,” Justice Samuel Alito wrote in the opinion of the court, “at least when the sale is fairly conducted in light of the country’s history of tax sales.”

But that caveat—whether the sale was fairly conducted—has left at least one possible avenue for the fight over home equity theft to continue.

The case with the open question

The family at the center of the ruling—the Pungs—saw their ordeal begin in 2010, when a local assessor denied them a tax exemption. The Pungs won their initial challenge before the Michigan Tax Tribunal, but the dispute resurfaced when the assessor again denied the exemption.

By the time Isabella County initiated foreclosure proceedings, the disputed tax bill had grown from roughly $1,600 to $2,200 with interest and penalties. Their home was then sold at auction for $76,000.

In Pung v. Isabella County, the family argued that returning only the auction surplus left them dramatically short of the compensation the Fifth Amendment requires when the government takes private property.

That same constitutional protection was at the center of the Supreme Court’s 2023 landmark decision in Tyler v. Hennepin County, which barred governments from keeping the excess value of a home after collecting on a tax debt.

“A taxpayer must render unto Caesar what is Caesar’s, but no more,” Chief Justice John Roberts wrote in that unanimous decision.

In the earlier proceedings of Pung, lower courts ordered Isabella County to return roughly $74,000 in surplus proceeds to the family—the amount left after the tax debt was paid—but rejected the Pungs’ request for the additional difference between the auction price and the home’s assessed value.

Tuesday’s ruling largely upheld that framework. The Constitution protects a former owner’s right to surplus proceeds from a fairly conducted tax sale, the court said, but does not require a county to make up the difference between an auction result and a hypothetical full-market sale.

The court also rejected the family’s argument under the Eighth Amendment’s Excessive Fines Clause, which contended that the county’s failure to compensate them for the home’s full fair-market value amounted to an unconstitutional punishment.

“The Eighth Amendment requires no such thing,” Alito wrote.

For advocates who have challenged tax-foreclosure systems around the country, the decision narrows a potentially powerful route for recovering lost home equity. 

While Tyler established that governments cannot simply keep the excess value from a tax foreclosure after satisfying the owner’s debt, Pung addressed the next question: whether that excess value must be based on the home’s market value rather than the amount it brought at auction.

The answer, the court said, is generally no.

“The Court held that an auction price that results from a fairly conducted auction is enough to meet the Constitution’s standard of just compensation,” said Larry Salzman, vice president for litigation and strategy at Pacific Legal Foundation (PLF), which represented the Pungs. “It rejected our argument that fair market value is sometimes required.”

What is still unsettled

Still, the justices did not decide whether Isabella County’s process met that fairness standard. Instead, the majority said the Sixth Circuit may consider the Pungs’ procedural arguments on remand if it first determines that they were properly preserved.

The majority noted that even the parties agreed a jurisdiction could violate the Constitution through “blatantly unfair procedures,” such as a sham sale or an unnecessary delay while housing prices collapsed. But the court declined to define the broader contours of a fair tax-sale process, saying the Sixth Circuit may consider the Pungs’ procedural arguments on remand if it finds they were properly preserved.

Justice Sonia Sotomayor, joined by Justices Neil Gorsuch and Ketanji Brown Jackson, underscored that the ruling did not settle what a fair auction requires.

“I do not read the Court’s opinion as identifying the contours of a fair auction,” Sotomayor wrote.

Justice Clarence Thomas went even further. In a separate opinion joined by Gorsuch except for one footnote, Thomas wrote that Isabella County’s treatment of the family appeared to depart from the historical practices the majority relied on to justify tax foreclosure sales.

“The government exists to protect property; property does not exist to support the government,” Thomas wrote. “What Isabella County did to the Pungs was wrong and, on my initial view, likely unconstitutional.”

He pointed to several features of the case: The family had previously prevailed in challenging the disputed tax bill; the family said they did not receive notice of the foreclosure in time to act; and the county seized their entire home over a relatively small debt without first attempting less drastic ways to collect.

Thomas also emphasized the gulf between the home’s value and what the county obtained at auction—a detail that Christina Martin, senior attorney at PLF told Realtor.com® in late 2025, before the case headed to arguments.

“If the government has the privilege to sell homes to collect property taxes, it should take care to act fairly and reasonably when it sells those properties,”  she said. “It has never been easier to advertise real estate with apps … yet many counties still don’t bother, because they don’t care about whether they get a just price for the property.”

For the broader home equity theft movement, the ruling draws a line between two claims that had increasingly become intertwined. Governments remain barred from pocketing surplus proceeds after a tax sale. But a low auction price, standing alone, will not establish that a homeowner is owed the home’s full market value.

The litigation now returns to the Sixth Circuit, where the Pungs will try to show that the problem was not merely that their home sold cheaply, but that Isabella County’s process was unfair from the start.