The court upheld foreclosure rules that allow local tax authorities to collect unpaid balances through auction instead of putting the home on the open market.
The Supreme Court rejected a Michigan homeowner’s argument to conduct open market tax foreclosure sales that would increase the profits owners receive after authorities use the sale proceeds to balance real estate taxes.
Michael Pung lost his home after failing to pay $2,241.93 in property taxes. To recover the balance, Isabella County tax authorities began foreclosure proceedings and sold Pun’s home at auction for $76,008, well below its appraised value of $194,400. After the transaction closed, Pung received surplus proceeds of $73,766.07.
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However, homeowners believed that tax authorities would receive “just compensation” if they sold the home on the open market, where it could have been sold for closer to appraised value and increased surplus income.
The judges said Mr. Pun’s argument was beside the point and noted that homeowners had other options to avoid foreclosure.
“If a property owner receives proper notice that he or she can sell his property to collect unpaid taxes, and if the owner believes that the fair market value of the property exceeds the taxes owed, the owner may be able to avoid foreclosure by refinancing the property or using the property as collateral for a new loan to pay the taxes,” Justice Samuel Alito wrote in his opinion. “Alternatively, the owner may be able to sell the property (or other real estate) themselves before foreclosure, pay off the tax debt, and keep the remaining money to buy or rent a new home.”
“Our nation’s history and our court’s precedents have established the principle that when a government seizes and sells real property to collect a tax debt, the owner is entitled to the surplus proceeds of the sale – nothing less, nothing more,” he added. “Thus, the standard for measuring just compensation in the context of a tax sale is the sales price, not the hypothetical fair market value of the property, at least if the sale is conducted fairly given our country’s history of tax sales.”
The opinion also highlighted the potential challenges of selling foreclosed homes on the open market, such as the long time it takes to recoup taxes and the “costs and risks associated with owning a vacant home.”
Justices Clarence Thomas and Neil Gorsuch did not formally dissent, but they questioned whether Isabella County had properly initiated foreclosure proceedings against Mr. Pung, and said they doubted whether Mr. Pung actually paid $2,241.93 in property taxes.
Larry Salzman, Pacific Law Foundation’s vice president of litigation and Mr. Pun’s attorney, told The Associated Press that the case will be returned to a lower court in hopes of convincing a judge that Isabella County mishandled Mr. Pun’s alleged delinquency.
“The case is not over yet,” Salzman said. “The Puns have won the right to continue their fight in the lower courts.”
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