On February 25, 2026, the Supreme Court of the United States heard the case of Michael Pung v. Isabella County, Michigan. The question before the court was of particular interest to me and to our firm. We are regularly involved in claims for surplus proceeds from both tax and mortgage foreclosure sales throughout the state.
Doesn’t the foreclosing party get to keep the excess?
Not anymore. In the event there was a surplus between the taxes owed and the sale price at tax foreclosure auction, municipalities (primarily county treasurers) used to reap the windfall. The Michigan Supreme Court held that practice to be an unconstitutional taking and contrary to common law in Rafaeli LLC v Oakland County in 2020. Later that year and in response to Rafaeli, the legislature devised a statutory scheme for former property owners to claim the proceeds. There are strict deadlines and narrow windows to do so, but it is possible. As stated above, we frequently assist with such claims.
Then, in 2023, a unanimous U.S. Supreme Court decided Tyler v. Hennepin County, Minnesota, holding that the Fifth Amendment’s taking clause is violated by a local municipality keeping the excess equity between sale price and the taxes that were owed. In Tyler,the displaced homeowner had a claim for $25,000 that otherwise would have gone to the county.
So what was the issue in Pung v. Isabella County?
Thanks to Rafaeli and Tyler, nobody disputed that the former homeowner was entitled to the excess tax sale proceeds from Isabella County. This case centered on what was really owed under the Fifth Amendment’s Takings Clause and the Eighth Amendment’s Excessive Fines Clause. Without addressing whether Pung even owed the tax (which is a tragic story on its own), the question focused on what constitutes “just compensation” under the Takings Clause when it forecloses on a property for a small tax delinquency.
If, in fact, any tax was due, Michael Pung only owed $2,200 to Isabella County. The County sold his property for over $76,000. However, its assessed value was approximately $194,000. His lawyer maintained that he missed out on about $118,000 in just compensation, which he argued must equal the fair market value of the property at the time of the taking, not merely the proceeds from a forced auction sale.
He also argued that Michigan’s tax foreclosure system inherently produces depressed prices because potential buyers cannot inspect the property and must pay in cash shortly after the sale, which increases risk and limits the bidding pool. The auction price is just one piece of evidence to determine fair market value, subject to the former property owner’s right to challenge, from his point of view. Alternatively, Pung contended that retention of the equity constituted a grossly disproportionate fine under the Eighth Amendment.
Isabella County responded that surplus auction proceeds are enough to constitute just compensation for Takings Clause purposes. As long as the auction is valid, the sale price it generates is the benchmark. This argument relied heavily on BFP v. Resolution Trust Corp., a 1994 Supreme Court opinion arising from a bankruptcy case. Justice Scalia wrote that a properly conducted foreclosure sets the “reasonably equivalent value.” In other words, if the auction is fair, its sale price is valid, even if it falls significantly below the fair market value.
The United States, through the Solicitor General’s office, recommended the case be remanded to determine if it was in fact a fair sale process. It also noted that, if Pung were to succeed, it would essentially end tax sales across the country: “[A]s this Court recognized in BFP, foreclosed property is simply worth less. Petitioner’s approach would defy that reality and spell the end of tax sales in this country.” Municipalities would not be able to sell all properties for fair market value, and they couldn’t afford to make up the difference.
Tax Sales not going anywhere
Never fear, county treasurers. Based on the justices’ questions, they are very unlikely to disregard the BFP standard and hold that Pung was entitled to the assessed, or fair market, value of his property. Again, we’re not discussing the underlying facts here, such as whether Pung was entitled to a homestead exemption that the County incorrectly took away for one year, but the justices were concerned with why Pung didn’t simply pay his taxes. Alternatively, if he couldn’t afford the $2,200 in taxes, he could have sold his house at fair market value, paid the taxes, and kept the much higher proceeds. Justices Alito and Jackson questioned why the taxpayer didn’t resolve the problem before it came to this.
Justice Gorsuch, among others, questioned the fairness of the auction, and it appears the record was not made below regarding that issue. That’s why it’s most likely, in my opinion, to be vacated and remanded to the lower court to examine the fairness issue.
Supreme Court Advocacy
Listening to the oral argument was especially interesting for me, not just because the case dealt with something in my practice area, but also because I’m interested in the specialty of Supreme Court oral advocacy since being there in person last November. With a shoutout to Advisory Opinions and SCOTUSblog, I have heard and read much lately about the relatively small circle of attorneys who regularly argue before the Court. The best advice seems to be that if you’re going to the Supreme Court, you should hire an attorney who has a lot of experience to make your case.
I know nothing about the number of times either Matthew Nelson, for Isabella County, or Philip Ellison, for Michael Pung, has appeared before the Court. However, it was good to hear well-presented arguments from two Michigan lawyers. Ellison, from Hemlock, Michigan, is the original trial attorney for Pung. Although I don’t expect him to prevail, he held his own very well throughout the argument.
Dalton & Tomich
The attorneys of Dalton & Tomich represent former property owners, both individually and through representatives, as they claim surplus proceeds from foreclosure sales.
We also represent small businesses, property owners, religious and nonprofit organizations, and financial institutions in a wide variety of legal matters. Contact us today.
