Supreme Court To Determine The Limits Of State Powers In Tax Foreclosures

In Pung v. Isabella County (No. 25-95), the Supreme Court is considering whether the Takings Clause requires governments to compensate property owners based on the fair market value of their property following a tax foreclosure, rather than limiting compensation to the proceeds generated by the foreclosure sale. The case also asks whether the government’s retention of the difference between the property’s alleged fair market value and the amount realized at auction may implicate the Excessive Fines Clause of the Eighth Amendment. The dispute arises from a foreclosure in which the property was sold for less than its asserted market value, raising questions about whether constitutionally “just compensation” turns on market value or the results of the auction-priced foreclosure process itself.

The case stems from the foreclosure of a home following the retroactive denial of a property tax exemption. After a protracted dispute over the exemption’s applicability, the property was deemed delinquent and ultimately sold at auction for $76,008—an amount alleged to be below its fair market value. Consistent with Michigan law, the County retained the proceeds after satisfying the outstanding tax liability. The petitioner contends that the constitutional injury lies not simply in the State’s retention of proceeds, but in the failure to measure compensation based on the property’s full market value at the time of the taking.

The lower courts rejected that position, concluding that the proceeds of the auction-priced foreclosure sale—rather than an assessed fair market value—provide the appropriate measure of just compensation. In doing so, they effectively treated the auction process as the mechanism that establishes value for constitutional purposes. The Supreme Court’s review thus centers on whether that approach is consistent with the Takings Clause, or whether the Constitution requires a distinct inquiry into market value irrespective of the foreclosure sale outcome.

At the February 25 oral argument, the Justices focused heavily on administrability and historical practice. Several questioned whether fair market value is a workable constitutional benchmark in the foreclosure context, where forced sales often yield prices below what a willing buyer might pay in an open market. Justice Kagan, for example, emphasized the gap between auction prices and market value, probing whether that gap reflects constitutional deficiency or simply the realities of distressed sales. Justice Jackson similarly raised concerns about whether adopting petitioner’s rule would impose on governments an obligation to maximize sale value, effectively transforming routine tax enforcement into a more complex valuation-driven process.

Other lines of questioning addressed procedural posture and doctrinal limits. Justice Barrett noted potential preservation issues with respect to some of petitioner’s historical arguments, while Justice Sotomayor pressed for evidence that the Court has ever required fair market value as the measure of compensation in the tax foreclosure context. These questions suggest the Court is attentive not only to the merits of the petitioner’s theory but also to the implications of adopting a rule that may lack clear historical grounding.

At the same time, Justice Gorsuch appeared concerned with the equities of the case. The disparity between the tax delinquency and the asserted value of the property prompted his questions about whether existing procedures adequately protect property owners from losses. Justice Gorsuch’s questioning also reflected interest in how the foreclosure process unfolded and whether earlier intervention could have avoided the outcome.

The interaction between the Takings Clause and the Excessive Fines Clause received little to no attention from the Court during the argument. In his briefs, the petitioner argues that the government’s retention of value beyond the tax debt functions as a punitive forfeiture, thereby triggering Eighth Amendment scrutiny. The County, by contrast, maintains that tax foreclosure is a remedial mechanism for collecting unpaid taxes and that any constitutional analysis should be confined to the Takings Clause. The United States, appearing as amicus curiae, advanced a narrower position, suggesting that where compensation is constitutionally adequate, the Excessive Fines Clause has no independent role to play.

The Court’s resolution of these questions could significantly affect state and local tax foreclosure regimes. A ruling requiring compensation based on fair market value would impose new constitutional constraints and could invite increased litigation over valuation methodologies and foreclosure procedures. And the recognition of an Excessive Fines claim in this context could expand the reach of the Eighth Amendment into areas of traditional state revenue enforcement, with potential implications for other forms of civil forfeiture and penalty-based regimes.