Local governments have a nasty habit of taking everything you have and leaving you dry. That’s how Isabella County, Michigan, treated the Pung family, whose case was heard by the United States Supreme Court on Wednesday, March 11. The county has foreclosed on the Pung family’s home due to a tax debt of just $2,000. The kicker? Both the tax tribunal and the court of appeal ruled that the Pungs did not even owe that tax in the first place. The local tax assessor’s response: “I don’t care.” The county took ownership of the Pungs’ home and auctioned it off for a fraction of its full value.
The Pungs’ lawsuit does not focus on whether the tax was actually owed. Instead, the case focuses on what the county should do after someone’s entire home is taken for a measly $2,000. The house itself was worth about $200,000, a hundred times the amount of the tax debt. But the county sold the property at auction for just $76,000, wrote off the $2,000 debt and returned the excess $74,000 to the Pungs. That means about $118,000 of the Pungs’ fortune has just been wiped out.
Well, not quite. The auction buyer quickly sold the property for the $195,000 it was actually worth. For those keeping track, the government gets its $2,000, a private investor gets windfall profits, and the Pungs are left in the lurch.
During the oral argument, several judges expressed disbelief at the fairness of taking over an entire house over such a trivial debt. But this isn’t the first time Michigan counties have taken over the whole small potato farming business.
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The Pung family’s home foreclosure over a $2,000 tax bill eventually reached the Supreme Court. (Pacific Legal Foundation)
For example, Wayne County foreclosed on a home owned by Erica Perez after she accidentally underpaid her 2014 property taxes by $144. Other than that one small mistake, the Perez family had paid their taxes in full every year from the time they bought the property in 2013 until the county foreclosed on it in 2017. They even tried to pay their 2018 taxes, but were told they no longer owned the home. They did not realize this because the government had sent the notice to the wrong address. The county then sold the property for $110,000 and kept every cent. The Perezes had nothing left.
Oakland County seized Uri Rafaeli’s rental property after a minor miscalculation resulted in his underpayment by $8.41. That’s not a misprint: his house was foreclosed on due to 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, Judge Richard Bernstein could hardly believe his ears: “You have a situation where people owe eight dollars and they’re losing their homes. How is that fair?”
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In another case, Sixth Circuit Judge Raymond Kethledge made an even more pointed observation: “In some jurisdictions, that type of behavior is called theft.”
Rafaeli’s case was a landmark case in Michigan. The state Supreme Court has ruled under state law that the government’s seizure of excess stock following a tax sale violates the Takings Clause of the Michigan Constitution. Like its federal counterpart, this provision guarantees that the government cannot take property without paying just compensation.
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It would take nearly four more years for federal legislation to catch up. In its 2023 ruling in Tyler v. Hennepin County, the U.S. Supreme Court ruled that, as in Michigan, this is true everywhere: when the government seizes more property than it owes, it must pay back the excess — just like in any other debt collection context (imagine the bank seizing your car for more than eight dollars).
But in Tyler, the court did not address what exactly should be repaid. 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 what the government gets from its sale, even if the sale price is far below the real value of the property. That is the question at stake in the Pung case.
Oakland County seized Uri Rafaeli’s rental property after a minor miscalculation resulted in his underpayment by $8.41.
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The government has a legitimate interest in levying taxes. And if taxes remain unpaid, it has several tools 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 give to Caesar what is Caesar’s – but no more.
The Constitution is ill-served by any rule that gives the government the freedom to refund the full value of the property they have taken. And any regime that allows windfalls to governments or investors creates a perverse incentive for tax collectors to maximize their premiums at the expense of homeowners. Time and time again, local governments have proven that if you give them even an inch, they will take your house.
