Supreme Court Says Tax Sale Price Sets Compensation for Home Seizures

Why it matters locally: This Supreme Court ruling clarifies the 'just compensation' standard for property seized in tax sales, impacting how local governments across Indiana, including potential actions by the Indianapolis City-County Building or the Lake County Government Center / County Administration, must handle surplus proceeds from such sales.

The Supreme Court on Tuesday returned a compensation dispute to a lower court after ruling that a Michigan county did not owe a homeowner the difference between a tax sale price and a subsequent higher market value. Justice Samuel Alito wrote for the court in *Pung v. Isabella County, Michigan* that the baseline for determining "just compensation" in tax seizures is the price obtained in a "fairly conducted" tax sale, not the property's fair market value. Michael Pung served as executor of his late nephew Timothy's estate when Isabella County foreclosed on the home over disputed unpaid taxes. The county sold the house at auction for $76,000. After subtracting what officials said Timothy owed in taxes, Pung received the remainder. The new buyer later sold the property for substantially more. Pung argued he deserved approximately $192,000, the difference between that second sale price and the taxes owed. He contended the county's payment violated the Fifth Amendment's takings clause, which prohibits the government from seizing private property without paying just compensation, and the Eighth Amendment's ban on excessive fines. The 6th Circuit Court of Appeals rejected his argument. The Supreme Court largely agreed, though it limited its ruling's scope. Alito emphasized that centuries of English and American law have permitted governments to seize and sell property for tax collection, provided they return surplus proceeds to the owner. "Our Nation's history and this Court's precedent thus establish the principle that when the government seizes and sells property to collect a tax debt, the owner is entitled to the surplus sale proceeds—nothing less, and nothing more," Alito wrote. During oral arguments at the Supreme Court, Pung raised questions about whether the county used fair procedures to conduct the sale. Both sides acknowledged that a government might violate the Constitution through blatantly unfair methods, such as conducting a sham sale or deliberately delaying a tax sale while property values declined. However, the parties disagreed about what constitutes a fair process. Rather than establish a constitutional standard for fairness, the justices instructed the 6th Circuit to address what procedural protections the Constitution requires for tax sales to be conducted fairly. The decision preserves a government's ability to recoup tax debts through property sales while leaving open the question of what procedural safeguards must accompany those sales.