Thoughts on the Supreme Court Oral Argument in the Pung v. Isabella County Takings Case
Most of the discussion was focused on the wrong issue. What matters under the Takings Clause is not the "fairness" of the process by which the owner's house was taken, but whether he got adequate "just compensation."
Today the Supreme Court held oral argument in Pung v. Isabella County, an important takings case in which I filed an amicus brief on behalf of the Cato Institute, myself, and a group of prominent takings scholars. Frustratingly, much of the oral argument focused on the wrong issue.
This is a case about home equity theft. 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 anything). They then sold the property at auction for about $76,000; the County kept the $2200 it thought was owed and transferred the remaining funds (about $73,800) to Pung's estate.
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. Pung's estate argues the fair market value here is actually $194,400 (the amount at which the county itself assessed that value for property tax purposes).
If a seizure of home equity after foreclosure is a taking - as the Supreme Court's unanimous decision in Tyler v. Hennepin County (2023) rightly held - then the estate is obviously right. The property taken is the residual value of the home (after delinquent taxes are repaid). And that can be more than the government got from the highest bidder at the auction.
Here, it seems clear the auction price was indeed far too low. We know that because the winning bidder quickly resold the property for $195,000 (very close to the Pung estate's estimate of the fair market value).
When the Court took the case and after I saw the impressively broad cross-ideological array of amicus briefs supporting Pung, I thought it highly likely that the justices would simply rule that fair market value compensation is required. Our amicus brief explains why that follows from basic Takings Clause principles. But, sadly, most of today's argument wasn't actually focused on the amount of compensation required, but rather on the "fairness" of the foreclosure and auction process to which the property owner was subjected. That's not the right issue! The Takings Clause is a substantive standard, not a procedural one. It requires payment of "just compensation" when the government takes property. And, in this case, both sides agree that a taking has occurred (counsel for the County admitted as much during the argument). Thus, the focus should be on whether the amount of compensation the Pung estate got was adequate, not on the process that got to that point.
And, in this case, it is very obvious that the compensation was grossly insufficient. The government's own valuation of the property shows that, as does the fact that the winner of the auction soon turned around and sold the house for almost exactly what the government had valued it at.
Justice Neil Gorsuch got it right when he said that "I would have thought that when I lose all the bundle of sticks in my property, and the state takes them, that's a taking… for the purposes of the U.S. Constitution." Exactly so! The County took the house, and therefore must pay the owner its full value.
Justice Ketanji Brown Jackson suggested "the thought that all of the fairness questions that are coming up in this case could actually be taken care of in the due process realm," and thus better dealt with under the Due Process Clause of the Fifth Amendment, rather than the Takings Clause. She's largely right about that, I think. But she draws the wrong conclusion for this case (that the County should likely win). The right conclusion is that the requirements of the Takings Clause cannot be satisfied by mere procedural fairness. The government must pay fully adequate compensation, which in most cases requires at least fair market value. In our amicus brief, we point out that fair market value compensation often may actually be insufficient, because it sometimes fails to account for the "subjective value" may people attach to their homes and other property. But, at the very least, compensation far below fair market value is not enough.
Perhaps the focus on procedural fairness was dictated by a fear that simply ruling that fair market value compensation is required would destroy the tax foreclosure system. The Trump Justice Department lawyer who intervened today claimed that such a requirement "would spell the end of tax sales in America. Every tax sale is necessarily going to yield less than fair market value." That claim is false. As detailed in our amicus brief (pg. 18), and others, states have a variety of options for structuring foreclosure auctions in ways that avoid that problem. For example, they could simply mandate a minimum auction bid equal to fair market value, or close to it. Justice Alito noted various such alternatives in the oral argument.
That said, it is true (as also noted in our brief) that tax foreclosure auctions often lead to inadequate compensation for property owners. We point out that poor, elderly, disabled, and minority owners are particularly at risk of home equity theft. The Court would do well to put an end to these blatant violations of constitutional property rights. If the price of ending it is that states must find some other way to deal with tax delinquencies, so be it.
Several justices, including Amy Coney Barrett and Sonia Sotomayor, highlighted the unfairness of the County's seizure of a home worth over $194,000 to pay off a tax delinquency of just $2200, especially since it was far from clear that Pung really was delinquent. As Barrett put it, "it sounds to me like this tax assessor was like Inspector Javert, but it was even worse because [in this case] Jean Valjean hadn't stolen the bread." Such vast disproportions between the tax delinquency amount and the value of the property taken often occur in tax foreclosure cases. That's yet another reason to mandate full fair market value compensation.
Justice Thomas raised the issue of why, if fair market value compensation is the standard, so many states have traditionally gotten away with paying much less. The answer is that it was only in 2023 (in the Tyler case) that the Supreme Court finally ruled on the issue of whether home equity theft qualifies as a taking at all. Until then, there was little federal judicial scrutiny of tax foreclosure auction prices, though some state courts did curb these practices under their state constitutions.
At this point, I am not sure what will ultimately happen in this case. Several justices suggested the Court might vacate the Sixth Circuit decision in favor of the County and remand the case for further consideration of the "fairness" of the foreclosure auction process. In that event, much will depend on what standards the Court sets down for evaluating how "fair" the process is. There may also be some chance that the Court will still require fair market value compensation, or at least some degree of presumption in favor of such. I cannot entirely rule out the possibility that Court will affirm the badly misguided Sixth Circuit ruling. But I suspect there are not five votes for that.
Finally, it's worth noting that the Trump administration's intervention against property rights here is of a piece with this administration's general hostility to constitutional property rights. Trump had a terrible record on property rights during his first term, and the second seems to be just as bad.
In sum, it's hard to tell what will happen here. But it's frustrating that the justices may end up making a clear and simple issue unduly complicated, and in the process mucknig it up. The government took the Pung estate's property here, and they have to pay full compensation for it, minus the delinquent taxes Pung owed (assuming he did in fact owe them). That should be enough to settle this case and all others like it.
NOTE: The Pung estate is, in part, represented by the Pacific Legal Foundation, a public interest law firm which is also my wife's employer. She, however, is not one of the attorneys on the case.