U.S. Supreme Court Hears Challenge to Michigan County’s $2,242 Tax Foreclosure on $194k Home

Attorney Phillip Ellison and the Pacific Legal Foundation represented the plaintiff. The plaintiffs argue that the auction didn’t reach a fair-market value for the home, and it claims that the government violated the Fifth Amendment’s Takings Clause and the Eighth Amendment’s Excessive Fines Clause.

The disagreement hinges on whether or not homeowner Scott Pung’s property tax exemption should be passed on to a family member after Pung and his wife died in 2004 and 2008, respectively. After that, Scott’s son Marc took control of the house. 

The local government argued that Marc should have reapplied for the exemption, which is where the debt started. A principal residence exemption lets homeowners avoid paying local school operating taxes up to 18 mills.  

The government could have taken less abrasive action to settle a $2,242 debt, such as filing a civil suit, seizing money from bank accounts, seizing vehicles, or even seizing a Peloton bike, Ellison told the Court. 

Justice Neil Gorsuch questioned why the local government pursued a $2,242 debt that their own administrative law judge said wasn’t owed.

Ellison responded: “We can’t figure that answer out… “And so we’re in a weird circumstance here where the taxes are legally, technically owed, but actually isn’t owed in this circumstance.” 

In 2020, the Michigan Supreme Court ruled that governments can’t profit from tax-foreclosed homes without justly compensating the property owner.

The court found that the government can’t keep any surplus from tax-foreclosure sales that exceeded the amount owed, which constituted an “unconstitutional taking without just compensation.”

The family fought this case in the County’s tax tribunal, then in the state and federal courts up to the nation’s top court. 

The Supreme Court aims to answer two questions: 

1. Whether taking and selling a home to satisfy a debt to the government, and keeping the surplus value as a windfall, violates the Takings Clause of the Fifth Amendment when the compensation is based on the artificially depressed auction sale price rather than the property’s fair market value? 

2. Whether the forfeiture of real property worth far more than needed to satisfy a tax debt but sold for a fraction of its real value constitutes an excessive fine under the Eighth Amendment, particularly when the debt was never actually owed. 

Attorney Phillip Ellison and the Pacific Legal Foundation represented the plaintiff. The plaintiffs argue that the auction didn’t reach a fair-market value for the home, and it claims that the government violated the Fifth Amendment’s Takings Clause and the Eighth Amendment’s Excessive Fines Clause.

The disagreement hinges on whether or not homeowner Scott Pung’s property tax exemption should be passed on to a family member after Pung and his wife died in 2004 and 2008, respectively. After that, Scott’s son Marc took control of the house. 

The local government argued that Marc should have reapplied for the exemption, which is where the debt started. A principal residence exemption lets homeowners avoid paying local school operating taxes up to 18 mills.  

The government could have taken less abrasive action to settle a $2,242 debt, such as filing a civil suit, seizing money from bank accounts, seizing vehicles, or even seizing a Peloton bike, Ellison told the Court. 

Justice Neil Gorsuch questioned why the local government pursued a $2,242 debt that their own administrative law judge said wasn’t owed.

Ellison responded: “We can’t figure that answer out… “And so we’re in a weird circumstance here where the taxes are legally, technically owed, but actually isn’t owed in this circumstance.” 

In 2020, the Michigan Supreme Court ruled that governments can’t profit from tax-foreclosed homes without justly compensating the property owner.

The court found that the government can’t keep any surplus from tax-foreclosure sales that exceeded the amount owed, which constituted an “unconstitutional taking without just compensation.”

The family fought this case in the County’s tax tribunal, then in the state and federal courts up to the nation’s top court. 

The Supreme Court aims to answer two questions: 

1. Whether taking and selling a home to satisfy a debt to the government, and keeping the surplus value as a windfall, violates the Takings Clause of the Fifth Amendment when the compensation is based on the artificially depressed auction sale price rather than the property’s fair market value? 

2. Whether the forfeiture of real property worth far more than needed to satisfy a tax debt but sold for a fraction of its real value constitutes an excessive fine under the Eighth Amendment, particularly when the debt was never actually owed.