Pung v. Isabella County

When homeowners fall behind on property taxes, counties sell the debt to investors at auction. The investor earns statutory interest (8-18%) if the owner pays back taxes during the redemption period (6 months to 3 years). If the owner doesn't redeem, the investor can foreclose. The market is $5.02B annually with 95%+ redemption rates, dominated by institutional players like Fortress Investment Group.

In 2023, the Supreme Court unanimously ruled that counties cannot keep "surplus equity" (home value above tax debt) after tax sales. Geraldine Tyler owed $15,000 in taxes; her condo sold for $40,000; Hennepin County kept the $25,000 surplus. SCOTUS ruled this was an unconstitutional "taking" under the Fifth Amendment. The county had to return surplus equity to Tyler.

On June 23, 2026, the Supreme Court held that just compensation after a fairly conducted tax sale is the auction price minus the debt, not fair market value. The Pung family's home was assessed at $194,400 but sold at auction for $76,008. Isabella County owed them $73,766 (auction price minus the $2,242 debt), not the roughly $192,158 the assessed value would imply. The Court rejected the fair-market-value theory as the default and left open, for the lower courts, whether a sale that was not fairly conducted could support more. Decided 9-0 in the judgment, Alito writing.

Claimants: Homeowners who lost property and may be owed surplus equity. Investors: Hedge funds (Fortress, Finch, Propel) hold billions in liens and could face massive liability. Counties: Run auctions and may be liable for past sales. Title Companies: Need to identify "Tyler clouds" on property titles before closing real estate sales. Law Firms: Represent claimants in surplus equity claims.