Supreme Court Weighs If Tax Foreclosure Sales Breach Takings and Excessive Fines

(MICHIGAN) — The U.S. Supreme Court heard arguments on February 25, 2026, in Pung v. Isabella County, Michigan, weighing whether a tax-foreclosure system that wipes out a homeowner’s equity violates the Constitution’s Takings Clause or the Excessive Fines Clause.

The case asks the justices to decide what “just compensation” means when a county takes a home to satisfy unpaid property taxes and sells it at a forced auction. It also asks whether the loss of substantial home equity can qualify as an “excessive fine” under the Eighth Amendment when the underlying offense is tax delinquency.

Fred Pung argues Isabella County took far more than it was owed when it foreclosed on his home for a tax debt and sold the property at public auction for an amount that matched the debt, leaving him with no surplus. The county replies that a forced auction is the legally required market mechanism, and that after the Court’s 2023 decision in Tyler v. Hennepin County, the Constitution requires returning only any surplus proceeds left after the tax debt is paid.

The dispute reaches SCOTUS after its unanimous ruling in Tyler, which held that a government violates the Takings Clause when it keeps surplus proceeds after a tax-foreclosure sale. That decision resolved a circuit split and became the central precedent for a wave of cases challenging what critics call “home equity theft” in tax foreclosures.

In Tyler v. Hennepin County, 599 U.S. 631, Chief Justice John Roberts wrote for the Court that a Minnesota county violated the Takings Clause by retaining $25,000 in surplus proceeds from a $40,000 sale after collecting a $15,000 tax debt. The $15,000 included $2,000 in principal plus $13,000 in interest and penalties, and the plaintiff, Geraldine Tyler, was 94 years old.

While Tyler established that homeowners have a protected interest in surplus value beyond the tax debt, it left room for a new fight that Pung squarely presents: whether compensation should track only the auction “surplus,” or whether it should be measured by the fair market value of the property interest taken, even if a forced sale yields less.

Pung’s case arises from Isabella County’s foreclosure of his home over a $76,000 tax debt that included interest and fees. The county sold the property at public auction for $76,000, which meant Pung received zero surplus under the approach the county reads from Tyler.

Pung argues that result misses the core loss. He contends his home had a fair market value of approximately $200,000 and that the buyer later resold it for $225,000, making the wiped-out equity the real constitutional injury.

A federal district court partially agreed with him on the Takings claim but applied a remedy consistent with Tyler, awarding surplus auction proceeds rather than the difference between fair market value and the tax debt. The same court dismissed Pung’s Excessive Fines claim.

The U.S. Court of Appeals for the Sixth Circuit affirmed on December 10, 2025. That decision set up the Supreme Court fight over whether the Fifth Amendment requires more than surplus proceeds when a compelled auction price tracks the tax debt but the owner claims the property was worth far more.

The Court granted review on two questions. The first asks: Does the Takings Clause require compensation based on the property’s fair market value, or just the surplus from a forced auction sale? The second asks: Does forfeiting substantial home equity—where property worth far more than the tax debt is sold at a fraction of assessed value—constitute an excessive fine under the Eighth Amendment?

At argument, Pung’s lawyer, Shay Dvoretzky Ellison, pressed the justices to treat the home’s market value as the proper benchmark for compensation when the government takes the entire property interest to satisfy a smaller debt. Ellison argued the government must pay the difference between fair market value ($200,000) and the tax debt, taking “the bitter with the sweet” from foreclosures.

Isabella County’s attorney, Matthew Nelson, urged the Court to focus on the forced-sale structure that state law uses to satisfy delinquent taxes. Nelson called auctions a “compelled market condition” distinct from idealized private sales, and he conceded a taking occurs but argued that returning surplus proceeds satisfies Tyler.

Several justices zeroed in on how a court could administer a fair-market-value rule without turning tax foreclosures into valuation trials. Justice Ketanji Brown Jackson focused on valuation disputes, highlighting the practical difficulty of determining what a home was worth at the relevant time and what role auction outcomes should play in that assessment.

Justice Amy Coney Barrett questioned how neatly tax foreclosures fit into existing takings precedents, probing whether the kind of property interest at stake maps onto other Fifth Amendment cases that measure compensation in more familiar settings.

Justice Neil Gorsuch pressed on timing, probing when the taking occurs in the foreclosure process and how that timing affects what value counts. Those questions matter because a Takings Clause theory often depends on identifying the moment the government took the relevant interest.

The Court also confronted a second constitutional path that could expand beyond Tyler’s takings holding. Pung’s Eighth Amendment claim asks whether stripping away large home equity operates as punishment that can be “excessive” relative to the wrong, even if the government frames the process as civil tax collection.

That Excessive Fines Clause argument echoes themes raised in Tyler. In that case, Justices Gorsuch and Jackson wrote a concurrence that pointed to the Eighth Amendment as another possible constraint when government actions resemble punitive forfeitures.

In Pung, the Eighth Amendment theory functions as a potential backstop. If the Court narrows takings relief to auction surplus, Pung argues the Constitution still bars government from using the tax-collection process to impose an outsized financial penalty by taking property worth far more than the debt.

The county disputes that framing, arguing the foreclosure system is not punishment but a mechanism to collect taxes and clear title, and that the relevant “fine” concept does not fit a process that turns on delinquent property taxes rather than a criminal sentence.

One line of questioning pointed toward a narrower outcome that could avoid resolving the full constitutional dispute. Several justices, including potentially the Chief Justice, hinted at vacating and remanding for additional proceedings to assess auction fairness, reflecting the Solicitor General’s position.

A remand focused on auction fairness could shift attention from the abstract constitutional baseline to the concrete mechanics of a compelled sale. That approach could ask whether the auction price reliably reflects value in the particular case, or whether a distorted sale process produced an unusually low outcome.

Still, the core dispute remains about what baseline the Constitution demands. Pung’s side says forced auctions can underprice homes, and that limiting compensation to surplus allows government to take a valuable property interest without paying for it so long as the auction happens to end near the amount of the tax debt.

Isabella County argues that adopting a fair market value rule would pull courts into routine fights over appraisals, turning a tax-collection tool into a constitutional damages system. The county’s position treats the auction as the compelled but operative market, with any surplus above the debt serving as the owner’s protected equity under Tyler.

The justices’ decision could matter far beyond Michigan because many states use tax-foreclosure systems that can extinguish homeowner equity. The Court’s ruling in Tyler already drove new litigation over what governments must return when they seize and sell property to satisfy unpaid taxes.

A ruling for Pung on the Takings Clause could expand Tyler by requiring compensation measured against fair market value rather than surplus proceeds, potentially increasing the amounts owners seek when the foreclosure sale price lags behind what they say the property was worth.

Such a holding would also put pressure on state tax-foreclosure regimes that historically allowed governments to retain value beyond the debt. The case record and arguments highlighted national attention to “home equity theft” in states like Michigan, Minnesota, and others, including Alabama, Illinois, and New York.

The Eighth Amendment question could also reshape these disputes by offering another theory of liability when owners lose substantial equity. If the Court recognizes that forfeiting large equity in a tax foreclosure can qualify as an excessive fine, plaintiffs could pursue remedies even in cases where takings doctrine yields a narrower measure of compensation.

At the same time, the Court could rule in a way that limits the reach of either theory. The justices could adopt a surplus-based approach under the Takings Clause, reject the Excessive Fines theory, or send the case back to develop facts about the auction and valuation before answering broad constitutional questions.

The Supreme Court had not issued a decision as of March 4, 2026. Opinions typically follow within 90 days after argument.

Whatever the Court decides, the case highlights a post-Tyler constitutional debate with high stakes for homeowners who fall behind on property taxes and for local governments that rely on foreclosures to collect delinquent amounts. The justices now must decide whether “just compensation” tracks the real-world value of what the government took, or whether a “compelled market condition” sets the measure, even when the homeowner says the lost equity dwarfs the debt.