The Supreme Court Will Hear Another Home Equity Theft Takings Case
This one addresses the issue of whether the owner of a home foreclosed for nonpayment of debt is entitled to "fair market value" compensation, or only whatever the government gets from auctioning off the property, minus the debt owed.
In Tyler v. Hennepin County (2023), a unanimous Supreme Court ruled that "home equity theft" is unconstitutional. If the government forecloses on a property for nonpayment of taxes or other debts, it can only keep as much of the value of the land as is necessary to repay the debt in question. The rest belongs to the property owner. Otherwise, the Court ruled, there would be a violation of the Takings Clause of the Fifth Amendment, which bars taking of private property without payment of "just compensation" (see my analysis of the ruling here).
After Tyler, I did not think the home equity theft issue would return to the Supreme Court anytime soon. But, yesterday, the Court decided to hear Pung v. Isabella County. In this case, Isabella County, Michigan seized the late Timothy Pung's house because he supposedly failed to pay some $2200 in taxes and fees (his estate claims he didn't actually owe this money). They then sold the property at auction for about $76,000; the County kept the $2200 it thought it was owed and transferred the remaining funds (about $73,800) to Pung's estate.
But the usual standard for takings compensation, according to longstanding Supreme Court precedent, is "fair market value" - the price a property would fetch if sold on the open market. And Pung's estate argues the fair market value here is actually $194,400 (the value at which the county itself assessed that value for property tax purposes).
If a seizure of home equity after foreclosure is a taking - as Tyler v. Hennepin County rightly held - then I think the estate is obviously right. The property taken is the residual value of the home (after delinquent taxes and other debts are repaid). And that may be more than the government got from the highest bidder at the auction.
To be sure, the highest bid at the auction is relevant evidence of fair market value. But it is not always the only evidence that must be considered. The government could potentially do a poor job of marketing the property, and end up accepting a below-market value price. That's especially likely if, as is usually the case, they have no incentive to maximize value, so long as they secure enough to repay the debt that supposedly justified the foreclosure in the first place.
Here, it seems clear the auction price was indeed subpar. We know that because the winning bidder quickly resold the property for $195,000 (very close to the Pung estate's $194,400 estimate of the fair market value). That suggests the County was either incompetent at marketing the property or just didn't care to make a serious effort.
The lower court ruling by the US Court of Appeals for the Sixth Circuit held there is no taking here. But it is largely based on previous circuit precedent, which offers little in the way of analysis on this point. Tyler makes clear that a property owner subject to tax foreclosure "must render unto Caesar what is Caesar's, but no more." Here, Caesar pretty obviously did take a lot more, even if he wasn't able to appropriate its full value for himself.
In addition to considering the Takings Clause issue, the Supreme Court will also weigh the question of whether this kind of home equity theft violates the Excessive Fines Clause of the Eighth Amendment. The Court need not decide that issue if they rule in favor of Pung on the Takings Clause question. In Tyler, the Supreme Court similarly chose to rely on the Takings Clause, and did not to decide the Excessive Fines Clause issue. In a concurring opinion, Justice Neil Gorsuch (joined by Justice Ketanji Brown Jackson), argued that home equity theft does indeed violate the Excessive Fines Clause, as well as the Takings Clause.
I hope - and tentatively expect - that the Supreme Court will reverse the Sixth Circuit and rule that the Pung estate is entitled to fair market value compensation. I doubt the Court would have chosen to hear this case just to affirm the lower court decision. There is no split between circuits here of a kind that might lead the justices to take a case to resolve it.
Pung is somewhat unusual, in recent years, in being a major Takings Clause case that reached the Supreme Court, but was litigated by conventional private counsel, rather than by one of the major property rights public interest firms, such as the Institute For Justice and the Pacific Legal Foundation (which litigated Tyler). Philip L. Ellison, the Michigan attorney representing the Pung estate, wrote a strong cert petition that must have persuaded the justices to take the case.
Regardless of how the case got to the Court, the property rights community will surely support the victimized owner here. I myself intend to file an amicus brief, and I suspect I will not be alone in that.