Supreme Court Confirms Tax Sale Price, Not Fair Market Value, Sets Just Compensation
On June 23, 2026, the Supreme Court decided Pung v. Isabella County, Michigan, addressing what a former owner is owed after a government tax foreclosure sale. The case builds on the Court's 2023 decision in Tyler v. Hennepin County, Minnesota.
Background on Tyler
Two points from Tyler frame the issue in Pung:
Hennepin County, Minnesota sold a homeowner's condo for $40,000 to satisfy a $15,000 tax debt, then kept the entire $25,000 difference for itself under a state law that gave the former owner no way to recover it.
The Court held that keeping the surplus violated the Takings Clause. A taxing authority may sell property to collect what it is owed, but it cannot keep more than the debt.
Tyler established that surplus proceeds belong to the taxpayer. It did not address how that surplus should be measured, which is the question Pung takes up.
What the Court Decided in Pung
Michael Pung's family owed $2,241.93 in property taxes. Isabella County foreclosed and sold the home, assessed at $194,400, for $76,008 at auction. Pung argued the county owed him the difference between the assessed value and the tax debt, not just the surplus from the actual sale. The Court disagreed. Key points from the opinion:
The auction sale price, not the property's hypothetical fair market value, is the baseline for just compensation, at least where the sale is fairly conducted in light of the country's history of tax sales.
The Court traced this rule through centuries of English and American practice, along with its own precedents, all of which required only the return of surplus proceeds, not fair market value.
The Court noted that a fair-market-value rule would often force a net loss on the government. In its own hypothetical, a $100,000 property sold at auction for $60,000 to satisfy a $20,000 debt would require the government to pay the owner $80,000 under Pung's theory, turning a $20,000 debt into a $20,000 loss for the government.
The Court also rejected an Eighth Amendment excessive fines argument built on the same fair-market-value theory.
The case was vacated and remanded so the lower court can address separate arguments about whether the county's specific procedures were fair.
A Note for Mortgage Lenders
Pung confirms that a fairly conducted tax sale will not expose the taxing authority, or a downstream purchaser, to added liability simply because the auction price came in below assessed value.
Servicers and REO teams evaluating properties that passed through a tax sale now have clearer footing on what a prior owner can actually recover.
What to Watch on Remand
Justice Thomas, joined in part by Justice Gorsuch, wrote separately to flag two arguments that did not carry the majority but could resurface in future litigation:
Whether a taxing authority must first pursue a delinquent owner's personal property before foreclosing on real property.
Whether a taxing authority may foreclose on an entire parcel when a partial sale would cover the debt.
Neither argument won over the full Court here, but they give a preview of how future challenges to tax sale procedures might be framed.
Bottom Line
Pung leaves the traditional tax sale framework intact and confirms that surplus proceeds, not fair market value, remains the measure of just compensation. The open procedural questions on remand are worth following, particularly for companies operating in jurisdictions with aggressive foreclosure timelines.
Questions about how this decision affects your servicing or REO practices? Contact troy@garrishorn.com.