In a controversial ruling the Supreme court made a groundbreaking ruling on property rights that has implications for property owners throughout the country. The ruling regarded tax liens and answers the question of whether a city can “seize” a property for unpaid property taxes and also answered the question can the government “take” property from taxpayers and what compensation if any must be given? Why is this case so important for real estate?
What was in the Supreme court case regarding property rights?
Pung v. Isabella County (2026)
- The Issue: A Michigan home with a tax debt of roughly $2,200 was foreclosed on and sold at auction for $76,000. The estate sued, arguing that because the house had a market value of around $200,000, the government’s auction process was a violation of the Fifth Amendment Takings Clause. Essentially the homeowner felt that the government in order to pay the taxes should use an open market process to retain the highest amount for the homeowner.
- The Ruling: The Supreme Court unanimously ruled against the family, determining that the actual price obtained in a fairly conducted tax sale is the constitutional baseline. Taxpayers are guaranteed the return of surplus auction equity, but not hypothetical market value.
Why did the supreme court take up the case on property rights?
Lower courts had ruled in favor of the homeowner, Pung, which put a cloud over all tax liens. The lower court ruling created a precedent that the government had a financial obligation to get the highest price. Essentially the lower court ruling would make every single tax lien go through the entire foreclosure process with notice, cure, auction, etc… costing cities thousands of dollars for each action.
For example, let’s say someone did not pay a 250 water bill in the City of Atlanta and it becomes a tax lien. Under the lower court ruling, the city of Atlanta would have to file a foreclosure action with the courts and go through the entire foreclosure process noticing lienholders, allowing time to answer, etc.. This whole process would cost upwards of 5k. It was not practical for governments to spend 5k to collect a 250 dollar bill and be tied up with the courts for almost a year. Furthermore, under the foreclosure process the tax lien would now be subject to bankruptcy proceedings which could exponentially increase costs for government.
Furthermore, the lower court rulings created a “cloud” for tax lien purchasers as there could have been a precedent whereas a tax lien purchaser could be held liable for “defrauding” a homeowner out of their equity.
How did the Supreme court rule on the property tax case and why?
The Supreme Court unanimously ruled against the family, determining that the actual price obtained in a fairly conducted tax sale is the constitutional baseline. Taxpayers are guaranteed the return of surplus auction equity, but not hypothetical market value.
Essentially the court ruled that it does not care what the “market value” is. Essentially the city/county did its due diligence by conducting an open auction for the tax lien.
Why is this property rights ruling so important for real estate?
The lower court ruling was absolutely wrong in putting a huge burden on cities and counties for getting the highest value for the taxpayer. If the lower court ruling would have stood, city/county tax collections would have plummeted as homeowners quickly would figure out that the city would not spend more to collect the lien than it was worth. Essentially the 250 dollar water bill that became a tax lien would not be collectible.
By the supreme court affirming city/county processes for tax liens it saved every other taxpayer billions by not having to subsidize the write-off of small tax lien amounts.
Does the property tax ruling change the “status quo”
The ruling reverts back to the original way tax lien sales have been conducted for the last 75 years and removes the cloud created by lower court rulings that wrongfully affirmed that the government was responsible for the highest and best use.
Supreme court got it right on property taxes and property rights
This case was clear cut in my mind, and the supreme court absolutely got the ruling right by affirming cities/counties rights to collect unpaid property taxes. We should be thankful for the court ruling as it saves everyone else billions of dollars not subsidizing others who don’t pay their taxes for small amounts that become uncollectable.
The root of the ruling also goes back to personal responsibility. If someone wants to sell their house for the highest price, then they are more than welcome to do this, but it is not the government’s job to get a homeowner top dollar when they don’t pay their taxes.
Although many interpreted the ruling as impacting property rights, I think it does just the opposite by bestowing the gift on individuals to make choices with their property. Hopefully people that don’t pay their property taxes will heed the message and either pay their taxes or take the initiative to sell the property for whatever they please, but regardless of their choice at the end of the day it is not the government’s obligation or fault if a property owner doesn’t get the highest value possible.
Additional Reading/Resources
https://www.fairviewlending.com/what-is-hiding-in-the-real-estate-market/
https://www.fairviewlending.com/zillow-stock-plunges-impact-on-real-estate/
https://www.fairviewlending.com/is-stagflation-dead-what-happens-now/
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Glen Weinberg personally writes these weekly real estate blogs based on his real estate experience as a lender and property owner. I’m not an armchair reporter/writer. We are an actual private lender, lending our own money. We service our own loans and own commercial and residential real estate throughout the country.
My day job is and continues to be private real estate lending/ hard money lending which enables me to have a unique perspective on the market. I don’t accept any paid sponsorships or ads on my blog to ensure accurate information. I’ve been writing this for almost 20 years and have over 30k subscribers. Please like and share my blogs on linkedin, twitter, facebook, and other social media and forward to your friends 😊. I would greatly appreciate it.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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