If Unpaid Taxes Cost You Your Property, What Are You Owed?
Real estate often sits among one’s most valuable assets, so a tax foreclosure can wipe out far more value than the unpaid tax that triggered it. In Pung v. Isabella County, decided by the United States Supreme Court in June 2026, the Court held that when a tax foreclosure sale is conducted fairly, the owner is owed only the surplus from the auction price, not the property’s fair market value. Because auction bids routinely come in below market value, the difference between the two is a loss that the former owner absorbs.
What Does “Just Compensation” Mean After a Tax Sale?
The Fifth Amendment bars the government from taking private property “without just compensation.” A government foreclosing on property to collect a tax debt has to return the surplus, meaning the sale proceeds left over after the debt is paid. Pung analyzed whether that surplus is measured against the auction price or the property’s fair market value. The Court chose the auction price, holding that the owner is owed the surplus from the sale, nothing less and nothing more. Fair market value is not the baseline, in part because owners can usually avoid a tax sale before it happens.
Does It Matter Whether the Sale Was Conducted Fairly?
Yes, and this is the part that business owners should watch. The Court limited its rule to a sale that is “fairly conducted in light of our country’s history of tax sales.” It did not define what makes a sale fair, and it left unanswered whether a county that sold more property than the debt required, ignored notice rules, or ran a fraudulent sale might owe more. A concurring opinion noted that, historically, the government had to exhaust personal property and sell only as much land as the debt demanded before taking an entire home.
How Did the Court Rule?
A Michigan family owed $2,241.93 in property taxes. Their home was assessed at $194,400 but sold at a county auction for around $76,000. Less than 18 months later, the buyer resold it on the open market for $195,000. The family recovered the surplus over the debt but not the gap between that figure and the home’s value.
The Court held that just compensation after a tax sale is the auction price, not fair market value, and that the Eighth Amendment’s ban on excessive fines did not require a different result. It vacated the decision below and sent the case back so the lower court can weigh whether the county’s procedures were fair.
Practical Takeaways:
The lesson for any property owner is to act before the auction, not after. Once a tax foreclosure sale closes, you are generally owed only the surplus over your debt, even if the property sold for far below its worth on the market. During the redemption period, paying the debt, refinancing, or selling the property yourself will likely recover more than waiting on the county’s auction. If the sale itself was unfair in how the property was marketed, how much was sold, or whether you received proper notice, the Court left the door open to challenge the sale on those grounds.