The Government Seized Their $195,000 Home Over a $2,242 Debt. What Does the Supreme Court Say They’re Owed?

Few things have been subject to as much syrupy sentimentality as the home. Those walls often hold more than any other structure: loved ones, growing pains, milestones, memories of the living and the dead.

For a lot of Americans, they also hold something else: their life savings, in the form of equity. What happens when that’s effectively vaporized overnight by the government?

Thousands of people across the U.S. confront a version of this question each year. They are now closer to an answer: The Supreme Court on Tuesday ruled that when the government seizes someone’s house to satisfy a property tax debt, the owner is entitled to the surplus proceeds from a tax sale, where prices are often depressed, as opposed to the home’s fair market value.

At the center of the case is the Pung family, of Isabella County, Michigan, who found themselves locked in a dispute with the local government over a $1,600 tax that the Michigan Tax Tribunal had previously ruled they were exempt from paying. A local assessor was undeterred. “I don’t care what he says,” Patricia DePriest, tax assessor for Union Township in Isabella County, remarked of the judge who ruled in the family’s favor. During oral arguments, Justice Amy Coney Barrett said DePriest “was like Inspector Javert,” the fanatically unbending cop from Les Misérables, “but it was even worse because Jean Valjean hadn’t stolen the bread.”

With penalties, the total debt—which the family to this day contests they owed—came to $2,242. The government then seized the Pungs’ $195,000 home and sold it at auction for $76,000. 

“The proper baseline under the Takings Clause is the price obtained in a tax sale, at least when the sale is fairly conducted in light of our country’s history of tax sales,” writes Justice Samuel Alito for the Court. “We also hold that, following a tax sale, the Eighth Amendment Excessive Fines Clause does not require the government to return more than the surplus proceeds. Neither the Fifth nor the Eighth Amendment requires the government to compensate former owners based on the hypothetical fair market value of their property.”

But the Pungs are not necessarily without hope. Emphasis on fairly conducted. “Just compensation ordinarily requires paying the owner the fair market value of his property,” notes Justice Clarence Thomas in a concurrence. Indeed, Supreme Court precedent has long held this. “I agree that sufficient historical evidence can justify an exception to the fair-market-value rule, and I join the Court’s opinion on that basis. But, any exception based on history can be no broader than what that history justifies. And, on my initial view, any history of tax foreclosure sales reflects a greater respect for principles of just compensation than the County showed the Pungs here.”

In other words, the tax sale needs to meet a certain bar. What happened to the Pungs was “likely unconstitutional,” Thomas, joined by Gorsuch, concludes. The U.S. Court of Appeals for the 6th Circuit will decide whether it agrees.

“Historical tax foreclosure procedures included rigorous notice requirements, which helped ensure that the foreclosed upon taxpayer had a clear opportunity to preserve his property,” Thomas writes. “But here, the township based its foreclosure on a tax that it imposed after sending the Pungs their tax bill, then foreclosed on the property despite the Pungs’ statement that they did not receive notice of the delinquency and would have promptly paid it—as they had paid all of their other taxes—if they had received notice.” He adds that history also implicates “rigorous procedures to ensure that the auction price of whatever property was sold matched, as nearly as possible, the fair market value of that property,” which arguably did not occur.

“There are tens of thousands of homes that are foreclosed on and auctioned every year for unpaid property taxes,” Larry Salzman, vice president for litigation and strategy at the Pacific Legal Foundation (PLF)—which was on plaintiff Michael Pung’s legal team—told me earlier this year. “No one is asking that [the government] play real estate agent. What we’re asking them to do is play fair in the way that they sell homes. And when you sell homes at a tax auction where you don’t advertise the auction, where you don’t allow inspections, where you require people to pay all cash, you can expect that the prices received for those properties will be far, far less than their fair value.” 

Until recently, a slew of state and local employees would have told you they knew precisely what property owners were entitled to when they lost their homes over tax debts: nothing. For years, many governments responded to overdue property-tax bills by seizing houses, selling them, and keeping the profits, in a practice that is sometimes referred to as home equity theft. A homeowner’s hardship was the government’s gain.

The walls closed in on that approach not long ago—at least in theory. In 2023, the high court ruled in Tyler v. Hennepin County that the government acted illegally when it took plaintiff Geraldine Tyler’s Minneapolis condo, sold it to satisfy a $15,000 debt, and kept $25,000 in profit. “A taxpayer who loses her $40,000 house to the State to fulfill a $15,000 tax debt has made a far greater contribution to the public fisc than she owed,” wrote Chief Justice John Roberts for a unanimous Court. “The taxpayer must render unto Caesar what is Caesar’s, but no more.”

Tyler was, in several ways, an apt standard-bearer for the cause. She was in her 80s when she moved from her condo to a retirement community, increasingly frail and uneasy amid reports of neighborhood crime. Juggling her new rent payments, she accrued a modest tax debt of $2,300. The remaining $13,000—roughly 85 percent of her total bill—came from penalties, interest, and fees. “Most people who lose their property this way are suffering from medical issues, or they’re elderly,” Christina M. Martin, a senior attorney at the PLF who represented Tyler, told me in 2022. “It also tends to affect the poor.” Martin would go on to argue her case before the Supreme Court the following year. Tyler was 94 years old when the decision bearing her name came down.

The government initially kept the profit after auctioning off the Pungs’ home, too. It returned the surplus only after losing on that claim in federal court. But that was cold comfort. “For them, this wasn’t just a house,” adds Salzman. “This was the family’s financial security.” 

Isabella County assessed the Pungs’ 3,000-square-foot home at $194,400; in 2020, the year after the auction, it sold on the market for $195,000. The family thus lost about $118,000 in equity, more than 5,000 percent of their disputed debt. 

Although it was likely more. The house sold again last year—this time for $342,000.