Tax Compensation Rule
Supreme Court Rules Auction Price, Not Market Value, Defines Tax-Sold Property Compensation
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The U.S. Supreme Court ruled unanimously on June 23, 2026, that when a government sells a home to cover unpaid taxes, the auction price — not the home's actual market value — sets the baseline for what the owner is owed. The case, *Pung v. Isabella County*, involved a Michigan family whose home was assessed at $194,400 by the county, sold at auction for just $76,008 to cover a $2,242 tax debt, and then resold on the open market for $195,000 within 18 months, according to Bloomberg Law.
The ruling is a partial win for property owners. It confirms they are owed something beyond the debt. But the Court stopped short of defining what makes an auction "fair" — leaving that fight to lower courts, state by state.
A $2,242 Debt Led to $118,000 in Lost Equity
The Pung family bought a home in Isabella County, Michigan, believing it was their primary residence. In 2010, the county retroactively reclassified it as a second home — for years 2007 through 2011 — creating a back-tax bill of $2,241.93, according to Bloomberg Tax. The county foreclosed in 2015 and sold the home at auction the following year.
The gap between what the home sold for and what it was worth is stark. The county's own assessment put the home's value at $194,400. The auction fetched $76,008 — about 39% of that figure. Michael Pung, representing his late nephew's estate, sued the county for keeping the difference. Justice Clarence Thomas, who joined the majority, called the seizure of a nearly $200,000 home over a $2,242 debt "wrong, and likely unconstitutional," according to Bloomberg Government.
Court Sets Auction Price as the Compensation Floor
Justice Samuel Alito wrote the opinion. He said the "traditional rule" in American and English law has long been that owners get the difference between the auction price and the debt owed — not the difference between fair market value and the debt. He wrote that the auction price is "the proper baseline, at least when the procedure is fair," according to Bloomberg Law.
By rejecting fair market value as the standard, the Court sided with local governments. Requiring FMV would force municipalities to pay owners more than they actually recovered from a sale — something Alito warned would make tax collection "unworkable." The NFIB's Beth Milito was disappointed, saying the ruling "will leave small business property owners vulnerable" to local governments that "artificially depreciate" property value at auction, according to Bloomberg Government.
"Fair Sale" Question Punted Back to Lower Courts
The ruling came with a major caveat. The Court only said the auction price applies "when the procedure is fair." It did not define what a fair sale looks like. The case goes back to the Sixth Circuit Court of Appeals, which must now decide whether Isabella County's specific auction met that standard, according to Bloomberg Tax.
Larry Salzman of the Pacific Legal Foundation, who argued for the Pung estate, said "the case isn't over." If the Sixth Circuit finds the auction was unfair — say, because of limited notice or a thin pool of bidders — the estate could still be entitled to fair market value. Legal analysts at Forbes and Gibson Dunn have called this a "punt," noting that constitutional tax sale rules remain far from settled.
States and Advocates Brace for Case-by-Case Legal Fights
This ruling follows the 2023 *Tyler v. Hennepin County* decision, which ended the practice of governments keeping 100% of tax sale proceeds. That ruling forced roughly 14 states to rewrite their laws. *Pung* was supposed to answer the next question — how much do owners get back? Instead, it drew a floor without drawing clear walls, according to Bloomberg Tax.
Housing advocates warn that "sham auctions" — where insiders buy properties at deep discounts — will continue with little accountability. Because auction prices typically run 30% to 50% below market value, most displaced owners will never be made whole under the new standard. Some states are acting on their own. Illinois lawmakers are already pushing reform to phase out private tax buyers in Cook County by 2030, according to Bloomberg Government.
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