Supreme Court leaves door open to challenge Isabella County foreclosure case

The U.S. Supreme Court ruled unanimously on June 23 that Isabella County did not violate the U.S. Constitution when it foreclosed on a family home and sold it over a disputed $2,242 tax bill.

The nation’s top court vacated a ruling from the Sixth Circuit Court of Appeals and sent the case Pung v. Isabella County back to the lower court.

Isabella County took possession of the Pung family home in 2018. It then sold the 3,000-square-foot dwelling at auction for approximately one-third of a previously estimated market value, or $76,000.

The court determined that when a county forecloses on a home, the just compensation owed to its owner is based strictly on how much the government generates from an auction of the home.

The Pungs, however, may still be able to win in the courts.

“The Supreme Court said the tax foreclosure system was permissible in the abstract – but only if the Pungs and others receive proper notice and procedural protections of and in the proceedings,” Derk Wilcox, senior attorney at the Mackinac Center Legal Foundation, told Michigan Capitol Confidential in an email. Wilcox had presented an amicus brief before the court.

A lower federal court, he said, will decide whether the county followed proper procedures.

CapCon reported in February that the county determined, after Scott Pung died, that his widow had to file additional paperwork and could not just claim a homestead exemption on the house.

The county thus levied a higher tax on the home, which it classified as a non-homestead property.

A state tax tribunal ruled against the county and said the Pung family should not be required to file additional paperwork, adding that the property had a homestead exemption. But the county continued to impose the extra amount anyway.

The Pungs did not pay the extra amount, and additional fines were added to the bill. The Pungs say they never received a notice the county was supposed to send.

The home, with a prior estimated value of $194,000, sold at a county auction for $76,000. Though the sale was meant to cover a balance due of $2,242, the county retained the entire sales proceeds.

In 2020, the Michigan Supreme Court ruled that the county had to return the proceeds above that amount to the Pungs. The family argued it had lost $118,000 because the county forwarded funds based only on the auction price.

Michigan lawyer Phil Ellison at Outside Legal Counsel PLC, was the family’s primary advocate.

The ruling is a “win,” Ellison said in a Facebook post.

“The lower-court judgment is gone,” Ellison wrote. “The Pungs get to keep fighting. And OLC will continue pressing the argument that government cannot take a family home over a small disputed tax amount without complying with the Constitution’s basic command of fairness.”

The nonprofit Pacific Legal Foundation joined Ellison to represent the Pung family at the U.S. Supreme Court.

“The Court held that an auction price that results from a fairly conducted auction is enough to meet the Constitution's standard of just compensation. It rejected our argument that fair market value is sometimes required,” said Larry Salzman, Vice President for Litigation at Pacific Legal Foundation. “At the same time, the court vacated the Sixth Circuit's decision and sent the case back to decide whether the auction of the Pungs’ home was fairly conducted. Justices Thomas and Gorsuch noted that they find it ‘likely’ that the County’s process violated the Constitution and urged the Sixth Circuit to address that carefully on remand.”