A Michigan family owed $2,242 in back property taxes. The county foreclosed, auctioned their home — assessed at $194,400 — for $76,008, and kept every dollar above the tax debt under the law at the time. On June 23, 2026, the Supreme Court decided that if a state's tax-sale process is otherwise fair, that outcome is constitutional. The family gets a shot at the $76,008 surplus. They will never see the other roughly $118,000.
If you own a business — especially one that owns or leases commercial real estate — this case matters more than it looks. Commercial property owners are far less likely than homeowners to have an escrow account quietly paying their taxes every month, which means a cash-flow crunch, a bookkeeping gap, or a missed notice can turn into a foreclosure faster than most owners expect. Pung v. Isabella County just drew the line on how much of your equity you get back when that happens — and the answer is: less than you'd think.
What Happened in Pung v. Isabella County
Isabella County, Michigan foreclosed on Rita Pung's home over a delinquent property tax bill of about $2,242. The county sold the property at a public tax auction for $76,008 — a fraction of its roughly $194,400 assessed value — and, under Michigan's tax-foreclosure process, treated the surplus as county property rather than automatically returning it to Pung.
Pung sued, arguing the county had effectively taken far more value than it was owed, in violation of the Fifth Amendment's Takings Clause and the Eighth Amendment's Excessive Fines Clause. The case reached the Supreme Court, which was asked a narrower but consequential question: when a state does return the surplus from a tax sale (as it's now required to under prior precedent), does the Constitution require that surplus be measured against the property's fair market value, or just against what the property actually sold for at auction?
The Backstory: Tyler v. Hennepin County and "Home Equity Theft"
To understand why this case existed at all, you have to go back to Tyler v. Hennepin County (2023), where the Supreme Court unanimously held that when a government keeps 100% of the proceeds from a tax foreclosure sale — including everything above the tax debt — that's an unconstitutional taking. The practice, sometimes called "home equity theft," had allowed counties in a number of states to seize an entire property over a tax bill that was a small fraction of its value, sell it, and pocket the difference.
Tyler forced roughly a dozen states — including California, Oregon, Ohio, Arkansas, Massachusetts, New York, New Jersey, Minnesota, Colorado, and Alabama — to rewrite their tax-foreclosure statutes to return surplus proceeds to former owners. But Tyler never answered the obvious follow-up question: surplus measured against what? The auction price, which is often depressed by a rushed, thinly-attended sale? Or the property's actual fair market value, which an appraisal might show is much higher?
Pung was the case that forced the Court to answer that question directly.
What the Court Actually Decided
Writing for an 8-1 majority, Justice Alito held that "the auction price is the proper baseline, at least when the procedure is fair," pointing to centuries of English and American legal history permitting tax sales structured this way. In plain terms: former owners are owed the difference between what the property sold for at the tax auction and what they owed in taxes — not the difference between the property's appraised value and the tax debt. If Isabella County's auction process was procedurally fair, Pung is owed roughly $73,766 (the $76,008 sale price minus the $2,242 tax debt), not the roughly $192,000 gap between fair market value and the tax debt.
Justices Thomas and Gorsuch wrote separately, arguing the county should have been required to seize and sell lesser assets — personal property, a partial parcel, anything short of the whole home — before taking the entire property over a comparatively tiny debt. That argument didn't attract a majority.
Critically, the Court explicitly declined to define what makes a tax-sale procedure "fair" in the first place, and sent that question back to the lower courts. That's the detail easy to miss in the headlines: this ruling resolves how much surplus you're entitled to, but leaves the door open for challenges to how the auction was run — notice requirements, marketing of the sale, bidding process, and timeline could all still be attacked as unfair in future cases.
Why This Should Worry Business Owners More Than Homeowners
Here's the part of this story that doesn't show up in most of the legal coverage: residential and commercial property owners are not equally exposed to this risk.
Roughly 80% of residential mortgage holders have their property taxes collected through an escrow account, meaning the lender pays the tax bill automatically out of the borrower's monthly payment — the owner barely has to think about it. Commercial mortgages are the opposite: only about 20% or fewer include a tax escrow. That means the large majority of business owners who carry a mortgage on their storefront, warehouse, office, or mixed-use building are personally responsible for tracking due dates, budgeting for a lump-sum bill, and actually cutting the check — with no lender-side safety net catching a missed payment before it snowballs into delinquency.
Combine that structural gap with a bad quarter, a bookkeeping error, a mailing address that didn't get updated after a move, or simple procrastination, and a property tax bill that's a small percentage of a building's value can spiral into the exact scenario Pung describes: a foreclosure sale that returns only auction proceeds, not the building's real worth, with the rest of the equity gone for good.
How to Protect Your Equity Before a Notice Ever Arrives
The single biggest lesson from this case isn't a constitutional one — it's operational. You don't want to be arguing about surplus equity in court; you want to never miss the payment in the first place. A few concrete habits go a long way:
- Treat property tax like payroll, not like a bill you'll deal with later. Set up a dedicated liability account and accrue a portion of the expected annual tax bill every month, even if you're not formally escrowing with a lender. When the bill arrives, the cash is already set aside.
- Verify your parcel ID and mailing address annually. A surprising number of delinquencies start with a notice going to a stale address or a payment applied to the wrong parcel after a refinance, subdivision, or ownership change.
- Calendar every jurisdiction's due date and grace period separately if you own property in more than one county or state — redemption periods and delinquency timelines vary widely, and "I thought I had until spring" is not a legal defense.
- Call the tax collector before you miss a deadline, not after. Many counties offer payment plans or short extensions for owners who reach out proactively; almost none offer leniency to owners who go silent.
- If cash flow gets genuinely tight, look at refinancing or a short-term loan against the property before a lien attaches, not after. Once a jurisdiction has started the foreclosure clock, your options — and your leverage — shrink fast.
- If you do fall behind, sell before the auction if at all possible. Under Pung, you're now guaranteed to get back at most what the property sells for at a tax auction. You'll almost always do better selling it yourself first.
None of this is exotic advice. It's the same discipline that prevents most financial surprises: know your obligations, track them in your books as they accrue rather than discovering them when they're due, and keep enough visibility into your own numbers that a $2,000 tax bill never has the chance to become a $190,000 problem.
The State Patchwork Is Still a Mess
One more wrinkle worth knowing: even in the states that reformed their laws after Tyler, many put the burden on the former owner to affirmatively file a claim for the surplus rather than returning it automatically. That means simply being legally entitled to a surplus under Pung and Tyler doesn't guarantee you'll actually receive it — you or your attorney may need to file within a specific window, in a specific court, using a specific form. If you or a client has already lost a property to tax foreclosure anywhere in the last few years, it's worth checking whether that state's post-Tyler claims process still has an open door.
Keep Your Property Tax Obligations Out of the Blind Spot
Cases like this land hardest on owners who lost track of a bill, not owners who couldn't afford one. Clear, current financial records — property tax accruals included — are what let you see a looming problem months before a county does anything about it. Beancount.io offers plain-text accounting that gives you complete transparency and control over your financial data, including every recurring liability like property tax, in a format that's yours, version-controlled, and never locked in a vendor's black box. Get started for free and keep obligations like this one visible long before they become a foreclosure notice.