Local governments have a nasty habit of taking everything you’ve got and leaving you dry. That’s how Isabella County, Mich., treated the Pung family, whose case was heard on Wednesday, March 11, by the United States Supreme Court. The county foreclosed on the Pung family home for a tax debt of only $2,000. The kicker? Both the state’s Tax Tribunal and its Court of Appeals ruled that the Pungs didn’t even owe that tax in the first place. The response from the local tax assessor: "I don’t care." The county took title to the Pungs’ home and auctioned it off for a fraction of its full value.
The Pungs’ lawsuit doesn’t focus on whether the tax was actually owed. Instead, the case addresses what the county must do after it takes someone’s entire house over a paltry 2,000 bucks. The home itself was worth about $200,000 — 100 times the amount of the tax debt. But the county hawked the property at a fire-sale auction for just $76,000, deducted the $2,000 debt, and returned the excess $74,000 to the Pungs. That means that about $118,000 of the Pungs’ equity was just wiped out.
Well — not quite. The auction purchaser quickly flipped the property for the $195,000 it was actually worth. For those keeping score: The government gets its $2,000, some private investor gets windfall profits, and the Pungs get shafted.
At oral argument, several justices expressed incredulity about the fairness of taking an entire home over such a trivial debt. But this is not the first time Michigan counties have taken the whole farm over small potatoes.
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For example, Wayne County took a home owned by Erica Perez after she accidentally underpaid her 2014 property taxes by $144. Other than that one minor oversight, the Perez family had paid their taxes in full every year from when they purchased the property in 2013 until the county foreclosed on it in 2017. They even tried to pay their 2018 taxes, only to be told they no longer owned the home. They hadn’t realized that, because the government sent notice to the wrong address. The county then sold the property for $110,000 and kept every penny. The Perezes were left with nothing.
Oakland County took Uri Rafaeli’s rental property after a slight miscalculation resulted in his underpayment of $8.41. That is not a misprint: his home was seized over a debt of eight dollars and 41 cents. That’s less than the price of a Chipotle burrito.
When Rafaeli’s case reached the Michigan Supreme Court in 2019, Justice Richard Bernstein could hardly believe his ears: "You have a situation where people owed eight dollars, and they lost their house. How is that equitable?"
In another case, Sixth Circuit Judge Raymond Kethledge put an even finer point on it: "In some legal precincts, that sort of behavior is called theft."
Rafaeli’s case was a landmark in Michigan. The state Supreme Court ruled, as a matter of state law, that the government’s confiscation of surplus equity after a tax sale violates the Takings Clause of the Michigan Constitution. Like its federal counterpart, that provision guarantees that the government cannot take property without paying just compensation.
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It would take nearly four more years before federal law would catch up. In the 2023 decision in Tyler v. Hennepin County, the U.S. Supreme Court ruled that, as in Michigan, so it is everywhere: when the government takes more property than it is owed, it has to pay back the surplus — just like in every other debt collection context (imagine if the bank repossessed your car over eight bucks).
But in Tyler, the court did not consider what exactly must be paid back. The Constitution requires "just compensation," which usually means the fair market value of the property at the time it was taken. But some courts have measured the value of the property by whatever the government manages to get from selling it, even if the sale price is far below the property’s actual value. That’s the question at issue in the Pung case.
The government has a legitimate interest in levying taxes. And when taxes go unpaid, it has several tools available to collect. But there is simply no reason why property owners should lose the equity in their homes over a small, simple mistake. As the Supreme Court said in Tyler, taxpayers must render unto Caesar that which is Caesar’s — but no more.
The Constitution is ill-served by any rule that lets the government off the hook for reimbursing the full value of the property they’ve taken. And any regime that permits windfall profits to governments or investors creates a perverse incentive for tax collectors to maximize their bounty at the expense of homeowners. Again and again, local governments have proven that if you give them an inch, they’ll take your home.
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