On June 23, 2026, the Supreme Court held in Pung v. Isabella County (No. 25-95) that when the government sells a property in a tax auction to collect unpaid taxes, the Fifth Amendment generally measures “just compensation” by the amount realized at the tax sale auction, not the property’s fair market value—so long as the auction was fairly conducted in light of the nation’s historical tax sale practices. The decision rejects a significant expansion of the Fifth Amendment Takings Clause that could have required governments to compensate former property owners based on appraised market value rather than the auction sales price. At the same time, the Court emphasized that the Constitution still requires a fair auction process and left open what that requirement may entail. The Court, therefore, rejected Petitioner’s argument that he was constitutionally entitled to recover the difference between the auction price and the home’s alleged market value. Because the lower courts may not have fully considered whether the auction procedures used in this case were fair, the Court remanded the case for further proceedings.

As summarized in Dykema’s March 2026 edition, Petitioner owed $2,241.93 in unpaid taxes on a home in Isabella County, Michigan, which led to foreclosure. After obtaining title, the county sold the home at a public auction for $76,008. Although the county later returned the surplus proceeds, Petitioner argued that he should receive compensation based on the home’s full market value, which he alleged was higher than the auction sale price.

Writing for a unanimous Court, Justice Alito (joined in full by Chief Justice Roberts and Justices Sotomayor, Kagan, Gorsuch, Kavanaugh, Barrett, and Jackson, and joined by Justice Thomas except as to Part III addressing Petitioner’s Excessive Fines Clause claim) began by examining centuries of English and American tax sale practices, tracing historical treatment of tax foreclosures from the Magna Carta through the early Republic. Historically, owners were entitled to any surplus generated by the sale. The Court viewed this historical practice as establishing the constitutional benchmark for “just compensation” in the tax sale context, reasoning that the Takings Clause protects the property interest historically recognized at the time of the sale—not a value the property might have commanded in a different transaction. Critically, however, that surplus historically was measured against the proceeds of the tax sale—not the hypothetical fair market value. After examining these historical practices, the Court turned to precedent and held that earlier decisions such as Nelson v. City of New York and BFP v. Resolution Trust Corporation reflect the longstanding principle that an owner whose property is sold through a tax foreclosure or comparable forced-sale process is not always entitled to the fair market value. The Court emphasized that neither history nor precedent supported Petitioner’s contrary arguments, explaining that tax foreclosures differ from traditional eminent domain cases because the government is collecting a delinquent tax obligation rather than appropriating property for public use. As the Court explained, “[w]hat is ‘just’ in one context may not be ‘just’ in another.”

The Court then rejected Petitioner’s claim under the Excessive Fines Clause of the Eighth Amendment, holding that Petitioner similarly failed to identify historical or precedential support for his theory that the Eighth Amendment is violated when a property owner receives the surplus proceeds from a tax sale rather than the property’s alleged fair market value.

Although it rejected Petitioner’s fair market value theory, it expressly left open whether an auction that is manipulated or otherwise fails to reflect traditional tax sale practices could independently violate the Constitution. Because the lower courts may not have fully examined whether the auction at issue was fairly conducted, the Court remanded the case for further consideration on that limited basis.

Justice Sotomayor (joined by Justice Jackson) filed a concurring opinion underscoring that the Court may have deliberately declined to define what constitutes a constitutionally “fair” tax auction, leaving that question for the lower courts on remand. Her concurrence signals that future litigation likely will focus less on the measure of compensation and more on whether particular auction procedures satisfy the Court’s historical fairness standard.

Justice Thomas, concurring in the judgment and partially concurring in the Court’s opinion (except for the Excessive Fines analysis), questioned whether governments historically could seize an entire parcel to satisfy a relatively modest tax debt without first exhausting less intrusive alternatives. His concurrence—joined by Justice Gorsuch (except as to part n. 1)—may invite future litigants to challenge tax sale procedures on historical grounds even though the Court rejected Petitioner’s principal compensation theory.

Takeaways

The Court confirmed that, in the ordinary case, the Takings Clause does not require compensation based on a property’s appraised fair market value after a tax foreclosure sale. Instead, the constitutional baseline generally remains the amount realized through a fairly conducted tax auction.

*Dykema served as counsel to amici curiae representing Michigan municipal and county organizations, emphasizing the federalism concerns and practical implications of imposing new constitutional requirements on local tax systems. The organizations represented include the Michigan Association of Counties, Michigan Municipal League, Michigan Townships Association, and Michigan Association of County Treasurers.

For more information, please contact Chantel Febus, James Azadian, Ted Seitz, or David Ter-Petrosyan.