In 2019, Isabella County, Michigan, seized Timothy Pung’s family home due to a disputed tax debt of approximately $2,000. The county sold the house, valued at nearly $200,000, for $76,000. Later, the buyer resold it for $195,000. Consequently, the Pung family received less than half the market value, stemming from a tax debt they argued did not exist.
Last month, the U.S. Supreme Court ruled that property owners are not entitled to fair market value when the government seizes and sells their homes to settle a debt. However, the process must be fair. The court remanded the Pungs’ case to a lower court to determine if the auction of their home met this standard.
Justice Clarence Thomas noted, “What Isabella County did to the Pungs was wrong and, on my initial view, likely unconstitutional.”
Many find losing home equity, accumulated over years for retirement or college funds, disturbing. The Pungs argued that the Fifth Amendment requires governments to compensate them for that equity with fair market value. Yet, during oral arguments, some justices hesitated to mandate the government to provide fair market value in all cases. Forced sales often result in reduced prices. Justice Samuel Alito remarked they’re inherently “incompatible” with standard methods of price maximization.
Despite the apparent injustice, some justices empathized with the government. During oral arguments, Alito humorously questioned what homeowners expected the government to do. Should it sell smaller items like a Peloton or a large TV before the house? The courtroom laughed. Still, Justice Thomas emphasized viable alternatives existed, such as targeting personal property, bank accounts, or vehicles before a home, especially for small debts.
The government’s attorney conceded during oral arguments that the county would have pursued the sale even if the debt were $100. A Michigan county once seized a home when the owner mistakenly underpaid by $8. Extraordinary measures like seizing a home for tax debt carry constitutional responsibilities. The Pungs’ attorney compared it to a client not paying a bill, stressing that one cannot simply seize their entire house.
The Supreme Court affirmed that the government can seize homes but must ensure fairness. Michigan’s auction process seemingly aimed for low prices, barring homeowners from bidding on their own properties, having no minimum reserves, banning pre-auction inspections, and not requiring listing through brokers. This was a predictable outcome of the auction system, not an unfortunate event.
Other states have adopted fairer methods, including market-rate listings, minimum prices, and judicial reviews. These ensure the government receives its dues without taking unjust amounts. The court highlighted flawed procedures like “sham sales” or delays until real estate prices fall. Once the government seizes a home, the Constitution demands “just compensation,” irrespective of whether it ends useful debt collection practices.
Now, the 6th Circuit Court of Appeals must decide if the Pungs will be compensated appropriately. Anastasia Boden, Director of Constitutional Scholarship at Pacific Legal Foundation, represented the Pungs in their lawsuit against Isabella County.