Supreme Court Says Government Not Liable to Pay Owner Fair Market Value in Tax Foreclosure Sale
In a 9-0 opinion (with a couple of concurring opinions), the U.S. Supreme Court held that a government that forecloses and sells property for delinquent property taxes is not responsible to pay the owner the difference between the sale price and the hypothetical fair market value of the property. Pung v. Isabella County.
Three years ago, the Supreme Court held that a government that forecloses and sells property for delinquent property taxes may be liable to return to the owner any surplus proceeds from tax foreclosure sales (i.e., the difference between the sales price and the taxpayer's debt). Tyler v. Hennepin County, 598 U. S. 631 (2023).
In today's case, the question before the Supreme Court went a step further - what if the sale price falls below the property's hypothetical fair market value, would the government be responsible for paying the difference to the owner as "just compensation" under the Fifth Amendment's Takings Clause? Yesterday, the Supreme Court said no, holding that the proper baseline for determining compensation under the Takings Clause is the price obtained in the tax sale so long as the sale was fairly conducted. The Court also held that the Eighth Amendment Excessive Fines Clause does not require the government to return the difference between the sale price and fair market value of the property that was sold. In this case, the Court held that the county was obligated to pay the surplus proceeds to the owner, but was not liable to pay more than what the county sold the property for at its tax sale auction. The opinion concluded with the following:
The Pung family lost its property because it failed to pay its taxes. The Fifth Amendment protects the family’s right to surplus proceeds from the tax sale, not compensation for the property’s fair market value. The Eighth Amendment offers no greater protections.
So, when a government forecloses and sells property for delinquent taxes, (1) it must return any surplus proceeds from the sale (the difference between the sale price and the taxpayer's debt) but (2) is not required to pay more than what the government sold the property for even if the fair market value of the property exceeds the sale price.
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