July 29, 2026

Last month, the United States Supreme Court (the “Court”) issued a decision in Pung v. Isabella County, Michigan that addressed the measure of “just compensation” following a tax foreclosure sale. The Court held that, when a tax sale is fairly conducted, the Fifth Amendment requires the government to return the surplus proceeds from the sale. It does not, however, require compensation based on the property’s hypothetical fair market value. The Court also rejected the argument that returning only the surplus proceeds violates the Eighth Amendment’s Excessive Fines Clause. The decision confirms that the constitutional baseline for compensation in a tax foreclosure situation is generally the actual auction sale price rather than the property’s estimated market value.

The Court relied extensively on the historical treatment of tax foreclosure sales. The Court explained that both English and American law have long permitted governments to seize and sell property to collect delinquent taxes so long as any surplus proceeds are returned to the property owner. The Court further concluded that requiring governments to compensate owners based on fair market value could make traditional tax foreclosure sales impractical by exposing taxing authorities to losses whenever auction prices fall below market value.At the same time, the Court declined to decide whether Isabella County’s foreclosure procedures were constitutionally fair; this leaves those procedural arguments for the Sixth Circuit to consider on remand if they were properly preserved. For mortgage servicers and lenders involved in tax foreclosure matters, the decision may provide additional certainty that constitutional compensation generally will be measured using the tax sale price rather than a property’s hypothetical fair market value.

DISCLAIMER

This publication may constitute attorney advertising under the laws and rules of professional conduct of one or more states. The information provided in this publication is for general informational purposes only and does not constitute legal advice. The contents are not intended to be a substitute for professional legal advice, consultation, or representation. No attorney-client relationship is formed by reading or relying on this publication. Prior results do not guarantee a similar outcome. Readers should consult a qualified attorney for advice regarding their individual circumstances or any specific legal questions they may have.

If you have questions about this publication, please contact Adam Friedman, Ralph Vartolo or Michael DeRosa,
Friedman Vartolo LLP, 1325 Franklin Avenue, Suite 160, Garden City, NY 11530, Phone: (212) 471-5100 | Fax: (212) 471-5150.