What Pung v. Isabella County Actually Decides
The Pung case is not about whether the government can foreclose on property for unpaid taxes. That's settled law. The question before the Court is narrower and more consequential: when the government takes a $194,400 home to satisfy a $2,242 tax debt and sells it at auction for $76,000, how much does the former owner get back?
The Sixth Circuit said the answer is the auction surplus — $73,767 in this case. The Pungs argue that answer is unconstitutional under both the Fifth Amendment's Takings Clause and the Eighth Amendment's Excessive Fines Clause. Their position: the surplus should be calculated from the property's fair market value (~$194,400), not the artificially depressed auction price. The difference — roughly $118,000 — is what this case calls the "Pung Gap."
If the Court sides with the Pungs, the implications extend well beyond one Michigan family. Governments and private investors have conducted tax foreclosure auctions for decades under rules that Tyler v. Hennepin (2023) already found partially unconstitutional. Tyler established that surplus equity must be returned. Pung will determine how surplus is measured. An FMV-based standard could expose counties and institutional investors to retroactive claims on thousands of prior sales — a potential liability the tax lien industry has not yet priced in.
The county's argument is practical: if foreclosure must yield full appraised value regardless of what buyers actually pay at auction, tax foreclosure becomes economically nonviable as a collection mechanism. The Court will have to weigh constitutional property rights against governments' operational need to collect delinquent tax revenue efficiently.
For investors bidding at tax sales today, Pung changes the due diligence calculus. The gap between a property's assessed value and its likely auction price is no longer just a return variable — it's a constitutional exposure variable. Properties with large FMV-to-auction-price gaps carry Pung liability that conventional lien analysis doesn't capture. Institutional investors holding portfolios assembled under pre-Tyler rules face the same exposure on legacy assets.
The ruling is expected Summer 2026. Either outcome reshapes how surplus is calculated, which determines the floor on what counties must return and the ceiling on what investors can retain.