Pung v. Isabella County Clarifies The Post-Tyler Tax Foreclosure Landscape

Highlights

• The U.S. Supreme Court's decision in Pung v. Isabella County resolves a key question left open by Tyler v. Hennepin County, holding that when a tax foreclosure sale is fairly conducted, a former owner's constitutional compensation is measured by the sale's surplus proceeds rather than the property's fair market value.
• Although the Court rejected both the estate's fair market value takings claim and its Excessive Fines Clause argument, several concurring justices emphasized the troubling facts underlying the foreclosure and stressed that challenges based on allegedly unfair foreclosure procedures remain viable.
• The decision leaves open future challenges based on the fairness of tax foreclosure procedures, signaling that post-Pung litigation may focus on issues such as notice, bidding procedures, sale administration and the return of surplus proceeds rather than fair market value damages.

The U.S. Supreme Court on June 23, 2026, issued its decision in Pung v. Isabella County, a tax foreclosure case that answers an important question left open by its 2023 decision in Tyler v. Hennepin County: When a government forecloses on real property to collect delinquent taxes and sells the property at auction, is the former owner constitutionally entitled to the property's fair market value or only the surplus proceeds generated by the tax sale? The Court's answer matters for counties, municipalities, tax-lien investors, purchasers and delinquent taxpayers. Tyler established that the government may not use a tax debt as a "toehold" to keep value beyond what is owed. Pung clarifies that where the tax sale is fairly conducted, the constitutional measure of that retained value is the auction surplus – not the property's hypothetical fair market value.

The Road from Tyler to Pung

In Tyler, the Court held that a former owner plausibly alleged an unconstitutional taking where a county sold her condominium to satisfy approximately $15,000 in unpaid taxes, penalties, interest and costs, then retained the approximately $25,000 surplus generated by the sale. The constitutional problem in Tyler was not the foreclosure itself. Rather, it was the county's retention of value in excess of the tax debt.

After Tyler, taxpayers argued that when a tax sale yields less than fair market value, the former owner also loses the difference between fair market value and the auction price – which tends to be a far lower number than the fair market value. Pung presented that issue directly. The Pung family allegedly owed $2,241 in real-property taxes. Isabella County, Michigan, foreclosed and sold the home, assessed at $194,400, for $76,008 at public auction. The estate argued that compensation should be measured by the property's fair market value rather than the difference between the auction price and tax debt.

Though those are the general facts of the case, what is often missed in discussions of Pung is the conduct of the county's assessor. The assessor incorrectly determined that the Pungs were required to file updated affidavits establishing that the home was their primary residence and, in the absence of doing so, they were taxed as if the home was a second home – which it was not. The Pungs challenged that determination and prevailed. The Michigan Tax Tribunal held that the Pungs did not owe additional property taxes. Following the Tax Tribunal's decision, the tax assessor continued to improperly tax the Pungs. In fact, the record reflects that the tax assessor stated "I don't care what he says" in reference to the judge who ruled in favor of the Pungs. Moreover, the original tax bill did not reflect the increased taxes; instead, the tax assessor imposed the additional tax only after sending out the original bill. Ultimately, the county sold the Pungs' property due to the tax assessor's improperly applied tax, which was assessed in willful disregard of the Tax Tribunal's ruling.

The Court's Holding in Pung

The Supreme Court rejected the estate's fair market value theory, holding that when the government forecloses on tax-delinquent property and sells at a tax sale, the relevant constitutional baseline is the sale price produced by the tax sale. The former owner is therefore entitled to the surplus proceeds remaining after satisfaction of the tax debt and allowable costs rather than compensation based on the property's hypothetical fair market value.

The Court also rejected the estate's Eighth Amendment theory, which argued that the county's failure to compensate it for the home's fair market value amounted to an excessive fine. The Court concluded that the Excessive Fines Clause does not require a government to return more than the surplus proceeds generated by a fairly conducted tax sale.

Notably absent from the majority opinion is a fuller discussion of the extraordinary facts, which underscore the force of the Pungs' argument that the taking was incomprehensible.

The Concurring Opinions

Justice Clarence Thomas' concurring opinion, joined by Justice Neil Gorsuch, highlights what the majority did not. Though the majority spent one paragraph discussing the facts of the case, Justice Thomas spent four pages detailing the facts of what transpired prior to the sale of the Pungs' property. Justice Thomas' opinion underscores the historical and equitable concerns that remain when a government uses a small tax delinquency to force the sale of a much more valuable home. Although he agreed with the sale-proceeds baseline, the concurrence highlights that Pung should not be read as approving harsh foreclosure practices as a policy matter. Justice Thomas' opinion ends with a strong caution: "What Isabella County did to the Pungs was wrong, and, on my initial view, likely unconstitutional."

Justice Sonia Sotomayor, joined by Justices Gorsuch and Ketanji Brown Jackson, authored a second concurring opinion that emphasized that the Court was not defining the full content of a "fair auction." That leaves room for future challenges focused on the mechanics of the sale rather than fair market value compensation. A taxpayer who cannot recover the gap between assessed value and auction price after Pung may still argue that the sale was unfair because of inadequate notice, restricted bidding, defective procedures or other features that made the auction an unreliable measure of value.

Taken together, the concurrences soften the local-government victory. The majority narrows the compensation remedy, but the separate opinions keep pressure on foreclosure procedures. For counties and municipalities, returning auction surplus may be necessary but not always sufficient. Administrators should also be prepared to defend the adequacy of notice, openness of bidding and sale timing, as well as accounting of taxes, interest, penalties and costs. For taxpayers, the post-Pung strategy will likely center less on appraisal evidence and more on whether the auction process was sufficiently fair to make the sale price a constitutionally acceptable proxy for the owner's remaining equity.

The majority's decision to remand the case to the U.S. Court of Appeals for the Sixth Circuit reinforces that point. Although the Supreme Court rejected the estate's principal theory that just compensation must be measured by fair market value, it vacated the Sixth Circuit's judgment and sent the case back for further proceedings on the unresolved fairness issues. On remand, the Sixth Circuit's task is not to recalculate compensation based on assessed or appraised value; rather, it is to address whether Pung preserved, and can prevail on, arguments that Isabella County's sale procedures were constitutionally unfair. That procedural posture matters because it keeps alive the possibility of relief in cases where the auction price is the proper baseline in theory, but the auction process itself is challenged as an unreliable or unfair measure of the owner's remaining equity.

What Pung Means for Tax Foreclosure

Tax foreclosure auctions are specialized tax-collection mechanisms, not ordinary voluntary sales. They may involve distressed properties, title uncertainties, statutory redemption issues, limited bidder pools and compressed sale procedures. Pung recognizes that these features can depress auction prices without necessarily transforming the sale into a taking of the property's full fair market value. The rule gives local governments a more administrable measure: Identify sale proceeds, subtract the debt and lawful costs, and return the surplus.

For tax administrators, Pung may be viewed as reducing post-Tyler exposure. Even before Pung, state legislatures were reassessing tax foreclosure laws in response to Tyler. For example, New York legislation proposed a temporary in rem foreclosure moratorium in response to the legal uncertainty created by Tyler and need to address return of surplus funds in delinquent tax foreclosures. Pung may reduce the urgency of reforms aimed at fair market value compensation, but the concurring opinions should increase attention to process.

However, a county that keeps surplus proceeds remains at risk under Tyler. Further, a county that conducts an unfair sale may face litigation because Pung rests on the premise of a fairly conducted tax sale, and the concurrences preserve room for process-based objections. Jurisdictions seeking to reduce litigation risk should focus on clear surplus-return procedures, robust notice, transparent accounting of taxes and costs, accessible claims processes for former owners and heirs, and auction rules designed to maximize competitive bidding. A regime that promptly returns sale surplus is on firmer constitutional footing than one that retains surplus or requires owners to navigate opaque procedures to recover it.

For taxpayers, Pung narrows the federal constitutional remedy but does not make tax foreclosure immune from challenge. Former owners may still challenge inadequate notice, defective procedures, unlawful fees, improper denial of exemptions, the tax-debt calculation and retention of surplus proceeds. They may also have state-law claims if state statutes provide more generous surplus, redemption, appraisal or sale protections than the U.S. Constitution requires.

Conclusion

Tyler constitutionalized the principle that governments may collect what they are owed in property taxes and fees but not keep any surplus. Pung supplies the key limiting rule: Where the government uses a fair tax foreclosure sale, the former owner's compensation is measured by the surplus proceeds of that sale, not by the property's theoretical fair market value. Together, the cases leave tax foreclosure intact as a collection tool but require governments to return surplus value and to administer foreclosure processes with procedural care.

For taxpayers, the cases preserve an important constitutional protection against equity confiscation while making clear that the strongest post-foreclosure claims will often depend on surplus proceeds, sale fairness, notice and state-law protections rather than fair market value damages alone. Those interested in the unique facts of the Pung's case should continue monitoring the case as the Sixth Circuit reviews the remand.

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