Tuesday, December 2, 2025

If you’ve been following our Excess Equity Watch series in The Legal Description, you know this area of law continues to shift under our feet. Ever since the Supreme Court’s 2023 Tyler v. Hennepin County decision, states have been revising (or at least reconsidering) how they should handle surplus equity after tax foreclosures. And now another significant case is headed to SCOTUS, with fresh implications for property rights and state processes.

Pacific Legal Foundation has joined Pung v. Isabella County, a case the Supreme Court will hear this term. PLF is the same organization who litigated Tyler, which unanimously held that government cannot keep more than what’s owed when it takes property for unpaid taxes. Pung, however, moves the conversation into new territory.

At the heart of the case is a deceptively simple question:
When a home is sold at a tax-foreclosure auction, what counts as “just compensation” under the Fifth Amendment?

The specific dispute arises from a Michigan property assessed at roughly $194,000 that was sold at a tax auction for just over $76,000 to satisfy a $2,200 tax debt. Under existing interpretations, the former owner’s estate (eventually) received only the surplus based on that discounted auction price. The petitioners argue that compensation should instead reflect the property’s fair-market value … and that relying on the reduced auction sale price allows the government to strip away tens of thousands of dollars in equity without meaningful oversight.

The case also raises an Eighth Amendment question:
If a state’s process effectively wipes out substantial homeowner equity over a small tax debt, does that amount to an excessive fine?

Additionally, the litigation isn’t just about excess equity — the facts alleged also challenges the legitimacy of the tax claim that triggered the foreclosure in the first place. The Pung estate contends that the home should have remained exempt under Michigan’s homestead‑exemption law, meaning the $2,241.93 tax bill that triggered the tax foreclosure, may never have been valid in the first place.  Critically interesting stuff.

Obviously, these aren’t merely theoretical issues for the real estate and title community. They influence how investors evaluate tax sale properties, how lenders understand risk exposure, and how title professionals raise and insure tax-foreclosure matters; especially when statutes vary dramatically from state to state. And for counties, the case highlights the challenge of administering tax collection systems that must stay within constitutional limits even as the courts redefine those limits.

PLF’s involvement signals that Pung may be the ruling that clarifies the “post-Tyler” standard.

Subscribers to The Legal Description have been reading comprehensive coverage on each new development. Our Excess Equity Watch library brings updates together in one place; including our in-depth webinar on the topic (it’s free, just sign up to let us know you’re watching).

Stay informed:  While PLF’s participation in Pung concerns excess equity, they also joined us on the Keys to Real Estate podcast to discuss a different issue entirely: FinCEN’s beneficial ownership reporting rule (slated to take effect March 1, 2026) and one Texas title agent’s fight against it. It’s valuable context for understanding the organization behind some of the most consequential cases in property rights today.  If you missed it, catch up here.

As we wrap up the year, cases like Pung remind us how quickly the landscape can shift, and how staying informed is one of the most practical tools we have. December may be full of holiday cheer and the year-end closing crunch, but it’s also a good time to take stock, audit your information sources, and prepare for what comes next.

We’ll always keep you up-to-date.

Until Next Time,

Mary Schuster
Chief Knowledge Officer
October Research, LLC