Pung forfeiture case heads to U.S. Supreme Court

The U.S. Supreme Court will hear arguments Feb. 25 in a case brought by a Michigan homeowner whose family lost their house to foreclosure over a tax bill they say they never owed.

The court is scheduled to hear oral arguments in Pung v. Isabella County, a case that asks whether local governments may keep far more than the amount owed when they seize and sell property for unpaid taxes.

At issue is the foreclosure of a home valued at about $200,000 in Isabella County. The county, which claimed the family owed $2,242 in taxes and fees, ultimately sold the 3000-square-foot property at auction for $76,000 and initially kept the proceeds.

The Pacific Legal Foundation, which represents the Pung family, argues the county’s actions violated the Takings Clause and the Excessive Fines Clause of the U.S. Constitution.

“Since Magna Carta — 800 years ago — the law has said you don't seize a person’s land when you can take something less to pay a debt,” Deborah La Fetra, a senior attorney with Pacific Legal Foundation, told Michigan Capitol Confidential in an email.

Pung v. Isabella County Brief for Petitioner by mcclallen

The county, La Fetra added, had multiple ways to collect $2,200 — a lien, a civil suit, or waiting for a refinance or sale while penalties accumulate.

“Instead, they chose the most destructive option possible: seize the entire home and auction it off,” she said.

The Mackinac Center Legal Foundation has filed an amicus brief in the case, arguing that when a government seizes and sells property to satisfy a tax debt, the Constitution requires that it obtain fair-market value for the home.

The county sold the property at auction for far less than the full value of the home, the lawsuit claims. The fair market value was approximately $194,000. The county originally kept the entirety of the money generated from the sale.

The case stems from a long-running dispute over a principal residence exemption on the Pung family home, La Fetra told CapCon in a phone interview.

After homeowner Scott Pung died in 2004, his widow continued living in the home.

Under Michigan law, the principal residence exemption generally remains in place so long as a qualified family member continuously occupies the property.

Yet Isabella County’s then-tax assessor, according to the Pung’s attorney, determined the family was required to file additional paperwork to maintain the exemption and retroactively removed it for multiple years beginning in 2007.

That decision increased the family’s tax bill by roughly $1,600 annually.

The family challenged the determination before the Michigan Tax Tribunal and prevailed, La Fetra noted. Administrative rulings concluded the additional paperwork was not required.

Despite the ruling, the tax assessor continued to charge the family the non-homestead exemption tax rate.

In 2012, the county assessed additional taxes. The family paid what they believed to be the correct amount but did not pay the additional $1,600 tied to the disputed exemption.

That partial underpayment, according to La Fetra, triggered the state’s tax foreclosure process.

The Pung home was foreclosed in 2018 over the underpayment and sold at auction the same year.

The county kept the $2,242 in taxes it claimed the family owed as well as the profit made from the auction.

However, two court rulings in 2020 put that decision in question.

The Michigan Supreme Court ruled in Rafaeli, LLC v. Oakland County and the U.S. Supreme Court ruled in Tyler v. Hennepin County, that governments must return the surplus proceeds from tax foreclosure sales.

“The Pungs paid their taxes — every penny they believed they owed,” said La Fetra. “If it can happen to the Pungs, it can happen to anyone, unless the Supreme Court puts a stop to it.”

All property owners must pay taxes on property they own, Matthew T. Nelson, a partner at Warner Norcross + Judd LLP and an attorney for Isabella County, told CapCon in a statement.

“Property owners must pay the taxes on the property they own. County treasurers are patient and happy to work with individuals who are in financial distress,” Nelson wrote. “Mr. Pung had ample time and opportunity to avoid this foreclosure and sale. He decided not to pay the taxes due on the property even when he knew that would mean that his nephew’s family’s home would be foreclosed.”