No one likes to pay taxes. Some go so far as to claim you don’t own your home since it can be taken for failure to pay taxes. If you owe a tax debt, how should government determine the value of your property?
Taxation or Theft
What happened to the Pung family is one of the better examples of both government actors’ abuse of power and the need to spend more time focusing on our local governments.
In 1991, Scott Pung bought a three-bedroom ranch-style home for himself, his wife, and their two children. The home sat on a little over half an acre of land in a suburban neighborhood in Union Township. Union Township is a small town in Michigan’s Isabella County (County). Pung purchased the property for $125,000.
The Pungs’ home was their primary residence. Michigan imposes lower property taxes on primary residences than it does on second homes. Therefore, the Pungs applied for and received an exemption from the higher tax rate that applies to second homes.
The Pungs’ home remained their primary residence going forward. When Scott Pung died in 2004, his wife Donnamarie continued to reside there. When Donnamarie died in 2008, her son Marc and his family continued to reside there. The home was continuously owned by Scott Pung’s estate, of which Donnamarie and Marc were beneficiaries. The Pungs thus continued to be exempt from the additional property taxes imposed on second homes, and they paid every tax bill in full.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
Many states offer exemptions for different properties. Michigan offered lower property taxes on a primary residence over a second home. When Scott Pung purchased his home, he applied for and received an exemption from the higher second home tax rate. After Scott died, the property passed to his estate, whose beneficiaries were both his wife Donnamarie and his son Marc.
In 2010, after the home had been the Pungs’ primary residence for 19 years, the Union Township tax assessor decided that the Pungs were subject to the additional property tax for second homes.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
I wonder what the basis was for the Union Township tax assessor to suddenly decide, after 19 years, that the Pung’s home was not their primary residence? Whatever it was, it appears the tax assessor was wrong.
She denied the Pungs’ exemption for tax years 2007 through 2011. The assessor incorrectly believed that the Pungs were required by state law to file an updated affidavit establishing that the home was their primary residence, which they had not done, so she taxed them as if the home were their second home.
The Pungs challenged the tax assessor’s decision and won. A Michigan tax tribunal held that the Pungs did not owe additional property taxes. Instead, the tax tribunal confirmed that the Pungs were liable for the ordinary tax rate they had already paid for a primary residence. This ordeal cost the Pungs considerable resources, but they at least believed that their “troubles . . . were over.”
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
Petition to the Michigan tax tribunal was made, and redress was given. The tax assessor was wrong and the Pungs do not owe any taxes beyond what they’ve already paid. Unfortunately, that wasn’t the end of the story.
The tax assessor, however, chose to not respect the court’s decision. “I don’t care what he says,” she said of the judge who ruled for the Pungs. … Although nothing had changed after the tax tribunal’s decision, the tax assessor purported to tax the Pungs in 2012 what would eventually amount to $2,242 for those same additional second-home property taxes, related penalties, and interest. Even a decade later, before this Court, the County could not substantiate a legitimate basis for imposing this tax. When asked at oral argument, the County’s attorney stated: “I don’t know what the township assessor’s reasoning was.”
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
So it appears that tax assessor, for a reason not disclosed, was the criminal in this situation. It appears he was attempting to extort money from the Pungs in direct violation of a court order. Not only was the tax assessor extorting money, it appears he set up the Pungs to lose their home.
The tax assessor imposed the additional tax in a manner that would make it more likely that the Pungs would become delinquent. The original tax bill sent to the Pungs for 2012 did not include the additional tax. The tax assessor imposed the additional tax only after sending out the original tax bill. The executor of the estate, Michael Pung, went to the township offices with a check to pay the full tax amount printed on his bill. At that point, a clerk informed him that an additional tax had been imposed on the estate. Michael explained that the additional tax was not due, brought Marc in with his driver’s license to demonstrate to the clerk that the home was his primary residence, and paid the proper amount. The additional improper amount demanded by the township is apparently the only “unpaid” tax in the Pungs’ history.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
Sneaky. First the assessor adds the tax after sending the tax bill, and it appears neither evidence nor the court order was going to change his mind. Which led to the foreclosure.
The assessor reported the Pungs’ property as delinquent. Then, the Township and Isabella County—whom I will collectively refer to as the County—began foreclosure proceedings. Although the Pungs paid the original tax bill in full, and did not owe the extra amount, the County gave the Pungs until March 31, 2014 to “redeem” the property by paying the supposed deficiency.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
Even though a Michigan Tax Court found that the assessor was wrong, that didn’t matter. And now the county is effectively blackmailing the Pungs to pay a tax they do not owe or lose their home.
The County stated that it mailed the Pungs notice of its intent to foreclose multiple times, but the Pungs stated that they did not receive the notices until after the deadline. They explained that if they “would have received notice,” they “undoubtedly would have taken action to prevent the foreclosure.” … In the meantime, the Michigan Court of Appeals affirmed the tax tribunal’s decision that the Pungs did not owe the additional property taxes. The County nonetheless persisted with its foreclosure effort.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
Wait, multiple courts state that the Pungs do not owe additional property taxes, but the assessor charges them anyway, and the county attempts to foreclose? What does the state court do?
The state court entered a default judgment of foreclosure against the Pungs’ home in 2015. The judgment vested title to the home in the County treasurer. The Pungs moved to set aside the foreclosure judgment for insufficient notice. The trial court set aside the order because the County should have known that the Pungs had not received notice of the foreclosure proceedings and could have easily taken additional steps to inform them.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
Even after the state court entered a foreclosure judgment, the trial court set aside the order. Why? Because the County should have known that the Pungs were not given timely notice of the foreclosure proceedings. But like a horse with the bit in their teeth, the County just won’t let this go.
Rather than allowing the Pungs to keep their home, the County appealed. The Michigan Court of Appeals reversed, holding that the County sufficiently tried to notify the Pungs of its planned foreclosure. So, in June 2018, the Pungs permanently lost title to the home that they had owned for 27 years. The sole basis for the foreclosure was the additional property tax in 2012 that was not in their tax bill and not authorized by law.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
And people wonder why I don’t trust courts. Here we have the Michigan Court of Appeals allowing the foreclosure on the Pungs’ home because the county gave them sufficient notice of a foreclosure based on a debt multiple courts said they did not owe. So much for courts of justice. That action brings us to the question before the Supreme Court.
The County, having foreclosed on the Pungs’ home, sold it. The County had determined that the fair market value of the Pungs’ property for the purpose of property taxes—including the property taxes that formed the basis for this suit—was $194,400. But, when the County sold the Pungs’ property, it sold it for only $76,008, under 40% of its fair market value. Less than 18 months after the auction, the new owner sold the property on the open market for $195,000, almost exactly its earlier assessed value.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
Not a bad profit for whomever purchased the home at auction for about 150%.
The Opinion
Remember, the question before this court is not the justice of the foreclosure, but did the auction determine the fair value of the home for the purpose of paying the tax debt?
The Pung family owed $2,241.93 in real-property taxes, so local tax authorities in Isabella County, Michigan, initiated foreclosure proceedings and sold the Pung home—which was assessed at $194,400 for tax purposes—for $76,008 at public auction. Michael Pung sued in Federal court, and the District Court granted Pung partial summary judgment on his Fifth Amendment claim. The court held that Pung should receive only the surplus proceeds from the tax sale—i.e., the difference between the sale price and the tax debt—not the property’s fair market value. The District Court also rejected Pung’s claim under the Eighth Amendment Excessive Fines Clause. The Sixth Circuit affirmed.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
The District Court had decided that the Pung family had a legal right to the surplus proceeds, the difference between the sale price and the tax debt. A tax debt that state courts had already decided they didn’t owe, and not the difference between the assessed or fair market value of the home?
For hundreds of years, English and American law have allowed the seizure and sale of property as a tax-collection method, provided that the government return any surplus proceeds to the debtor. Federal statutes from the early days of the Republic applied this rule, as did this Court’s precedents.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
Remember, the question before the court is not the legitimacy of the tax debt, but the collection of that debt.
Thomas Opinion
Justice Thomas offered an opinion in which he concurred in part and dissented in part. In his opinion, Justice Thomas wanted to focus on what he saw as the proper resolution to the Pung’s claim.
The Takings Clause forbids the government from taking a person’s property unless it provides “just compensation.” In this case, all agree that the government took the Pungs’ property and therefore owed the Pungs just compensation. … Just compensation generally requires paying fair market value. Regardless of when exactly the history of tax foreclosure sales can justify a departure from that rule, my initial impression is that it cannot do so in this case.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
Is what the county did a takings under the Fifth Amendment? Because the county did not take their property for public use. They foreclosed on a debt, then sold the property to satisfy that debt, so I’m not sure where the Takings Clause enters in. If this had been a taking, if the county had exercised eminent domain to take the Pung’s property for some public use, then the question of just compensation would apply.
To make the owner whole, “just compensation normally is to be measured by ‘the market value of the property at the time of the taking.’” … Fair market value, a familiar legal concept, means what “a willing buyer would pay in cash to a willing seller.” … Anything less than fair market value is ordinarily not just compensation.
The Pungs did not receive fair market value.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
But this wasn’t a taking, it was a foreclosure, so all of this just compensation language is meaningless. Yes, it was an illegal foreclosure, but the question before the court was not the legality of the foreclosure.
Conclusion
How did the court find in this case?
Held:
1. The proper baseline for measuring “just compensation” following a tax sale is the auction sale price, not the property’s hypothetical fair market value, at least when the sale is fairly conducted in light of the country’s history of tax sales.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
What does the county owe the Pung family? If the tax was legal, then all the Pungs had to do was pay it. If the tax was legal, then the Pungs could have sold the property, settle their tax debt, and keep the rest. However, the Pungs didn’t settle their debt, because the tax was illegal. Since the tax debt was not paid and the county foreclosed on the property, the Pungs’ right to control what their property was sold for was taken from them as well.
2. The Court rejects Pung’s argument that the County violated the Eighth Amendment Excessive Fines Clause by failing to compensate him for his property’s fair market value. Forfeiture of property can be a “fin[e]” for purposes of the Eighth Amendment if it serves “in part to punish.” … Pung lacks precedent or historical evidence suggesting that a tax sale which is fairly conducted in light of our Nation’s history would violate the Eighth Amendment.
Pung, Personal Representative Of The Estate Of Pung v. Isabella County, Michigan
There was no fine, so the Excessive Fines Clause does not apply.
While I agree with the court, there was no taking for public use, so the just compensation claims fails, as does the excessive fines claim. That’s not to say that the Pungs do not have a grievance. The foreclosure itself was fraudulent, since it was for a debt for a tax that multiple courts found was wrongly applied. I’m not an attorney, but it seems to me that the Pungs should have sued under §1983 based on a violation of the Due Process Clause of the Fourteenth Amendment.
nor shall any State deprive any person of life, liberty, or property, without due process of law;
Due Process Clause – U.S. Constitution, Amendment XIV
Isabella County, Michigan, deprived the Pung family of their property based on an invalid tax which the assessor applied contrary to a court order and in such a way as to hide the tax from the homeowner. That is a fraudulent tax, and the assessor should be charged with theft. That county title for the property should be returned to the Pungs, and the county should refund both the person who bought the home at auction and the person who purchased it from them, with appropriate punitive damages.
This is a perfect example of why I suggest people pay more attention to local government than they do. While everyone has been focusing on the Takings and Excessive Fines Clauses of the United States Constitution, a family’s home has been stolen. And even if they won this case, they did not have their grievances redressed.
