On February 25, 2026, the Supreme Court of the United States heard oral argument in Pung v. Isabella County, Michigan, No. 25-95, a case that could materially reshape the constitutional framework governing tax lien foreclosures and surplus equity claims nationwide.  The argument confirms that Pung may determine not only whether surplus equity must be returned—as Tyler v. Hennepin County, No. 22-166 (May 25, 2023)[1] previously addressed—but also how “just compensation” is measured when property is sold at a tax foreclosure auction for less than asserted fair market value.

As we previously discussed here, lower courts have been grappling with how to measure “just compensation” after Tyler and whether the foreclosure sales price is a constitutionally sufficient proxy for fair market value.  The oral argument confirms that the Justices are not merely revisiting Tyler; they are testing the outer limits of takings doctrine in the tax foreclosure context.

Overview of Tyler v. Hennepin County and Pung v. Isabella County

In Tyler, the Supreme Court unanimously held that a county violates the Takings Clause when it retains surplus equity beyond the amount of a tax debt after foreclosing on a property. The Court made clear that a taxpayer has a constitutionally protected property interest in surplus value.  The High Court did not address, however, who should pay just compensation for that taking, how that just compensation should be valued, or when that amount should be valued.

Pung raises the next—and more complicated—question: How is “just compensation” measured when the government takes title through tax foreclosure and sells the property at auction for less than the alleged fair market value?

The petitioners argue that constitutional compensation must reflect the property’s true fair market value, not the often depressed auction price obtained at a distressed sale. The county counters that the foreclosure auction price—generated by a statutorily prescribed process—is the appropriate measure.[2]

The Oral Argument’s Focus

Although the Supreme Court agreed to hear questions about both the Takings Clause and the Excessive Finds Clause, the nine Justices focused the oral argument almost exclusively on the just compensation question raised in the Petition: “Whether taking and selling a home to satisfy a debt to the government, and keeping the surplus value as a windfall, violates the Takings Clause of the Fifth Amendment when the compensation is based on the artificially depressed auction sale price rather than the property’s fair market value?”

The Court focused on a variety of subsidiary questions:

1. Is Auction Price an Adequate Proxy for Just Compensation?

The dominant theme at argument was whether the foreclosure sale price can constitutionally define “just compensation.”  Several Justices pressed petitioners’ counsel on administrability:

• If fair market value governs, who determines it?
• Would every tax foreclosure spawn endless litigation about appraisals?
• Does the Constitution require governments to guarantee optimal sales conditions?

The concern was not abstract. A fair-market-value rule could transform routine tax collection into appraisal-intensive constitutional litigation — a result several Justices appeared reluctant to endorse.

The County’s position rested on historical practice and procedural regularity: tax sales have long been conducted via auction, and auction price has historically been treated as conclusive evidence of value.  But petitioners pushed a more fundamental principle: constitutional compensation cannot be defined by the government’s own liquidation mechanism. If the government structures a distressed sale, it cannot rely on the depressed result to limit its constitutional liability.

For practitioners, this exchange matters enormously. If the Court embraces Mr. Pung’s theory, foreclosure auction price will no longer function as a safe harbor. Municipalities and tax sale bidders may face exposure measured against actual market value—not the amount paid in at the time of the tax sale.

2. Historical Practice as a Guide

Several Justices focused heavily on history, a hallmark of modern takings jurisprudence.  They questioned whether Mr. Pung could identify historical evidence that governments were required to pay market value beyond sale proceeds in tax forfeiture contexts.  This historical framing places Pung squarely within the post-Tyler debate: was Tyler about protecting surplus equity as a discrete property interest, or does it imply a broader constitutional mandate about valuation?

The tenor of questioning suggests that at least some members of the Court view Tyler as being narrowly focused.  In light of that questioning, they may be hesitant to extend it into a sweeping redefinition of compensation standards. 

3. Issue Preservation and Remand

Much of the argument also focused on the degree to which the more thorny valuation questions were “pressed and passed upon” by the lower courts.  This highlights a traditional limiting principle of appellate courts, which generally do not address novel questions not briefed and fully considered by the trial court, and then the intermediate court of appeals.  Generally speaking, the Supreme Court likes to avoid addressing novel questions without the benefit of one or more lower courts having weighed the various arguments in a way that helps the legal theories develop (what some usually refer to as “percolating” through the lower courts). 

One of these issues that received a good deal of attention involved the mechanics and fairness of the auction process.  Almost each of the nine Justices asked:

• Were bidders at the auction somehow restricted from driving the price up to the market value?
• Was marketing of the sale limited in any way?
• Did the sale structure depress the ultimate value of the final bid?
• Could the homeowner have sold the property before foreclosure?
• Could the County have first sold personal property to satisfy the tax in lieu of selling the more valuable real property?

These questions suggest that some Justices may be more comfortable framing relief around procedural fairness than around a categorical compensation rule.  From a litigation standpoint, that distinction matters enormously. A ruling grounded in process may preserve auction price as presumptive compensation while leaving room to challenge demonstrably flawed sales.

Because some of these valuation questions had not been addressed before, the Court may very well remand the case for the Sixth Circuit to address in the first instance.[3]

4. Practical Consequences: A Recurrent Concern

The Court also probed the systemic consequences of Mr. Pung’s rule:

• Would states need to alter tax sale statutes nationwide?
• Would Counties face retroactive exposure to takings claims?
• How would courts handle valuation disputes years after foreclosure?

These are not abstract concerns. After Tyler, the lower courts have seen a wave of litigation across jurisdictions challenging past foreclosures.  If fair market value becomes the constitutional benchmark, a second wave may follow—focused not on surplus retention alone, but on undervaluation. 

As we discussed in our prior analysis of lower court developments following Tyler, including application of Fair v. Continental Resources (here), courts have already begun shifting liability to tax-lien investors bidding at the auction, meaning more parties are likely to be named in appraisal-related challenges.  A robust ruling in Pung could both expand and intensify those battles.

Implications for Local Governments and Tax-Lien Investors

Justice Kagan’s questioning of the Solicitor General focused on what a market-value ruling could mean.  Speaking on behalf of the United States, Mr. Liu explained the dire results of such a ruling in Mr. Pung’s favor:

JUSTICE KAGAN: So what would it mean if we said that the measure was fair market value with respect to foreclosure sales?

MR. LIU: It would spell the end of tax sales in America.  Every tax sale is necessarily going to yield less than fair market value.

If the government is nevertheless required to reimburse the taxpayer—taxpayer as if the sale yielded fair market value, then every tax sale is going to end up costing the government money, and it won't be long before governments simply stop conducting tax sales altogether.

And at the end of the day, who does this hurt?

It hurts other taxpayers who are actually paying their taxes because the shortfall has to come from real taxpayers.

In a similar vein, if the Court adopts a fair-market-value rule:

1. Valuation Exposure Increases.  Counties could face liability for the difference between market value and tax debt—even if the property sold for far less.  This liability could also extend to tax-lien investors with the winning bid at the tax sale.
2. Procedural Reforms May Follow.  Governments may need to implement additional safeguards to approximate market value—such as minimum bid requirements, appraisal thresholds, or surplus-return mechanisms calibrated to appraised value rather than sale proceeds.  This could turn government officials into real estate marketing and valuation experts despite having no experience in those fields.
3. Section 1983 Litigation Will Expand.  Plaintiffs will frame claims not merely as surplus-retention cases, but as undervaluation takings claims.  This could mean additional class actions and an increase in attorney-fee awards for plaintiffs’ counsel nationwide.

Conclusion

Whatever the outcome, Pung v. Isabella County represents the Supreme Court’s continued engagement with tax foreclosure systems nationwide.  As we previously noted in, the grant of certiorari itself signaled that unresolved constitutional questions remain after Tyler.  Last week’s oral argument confirms that the Court is grappling not merely with surplus retention, but with the foundational question of how the Takings Clause operates in forced-sale contexts.

For governments, lenders, investors, and property owners alike, the ruling will likely shape:

• The design of tax foreclosure statutes across all types of tax-foreclosure systems;
• The scope of Section 1983 cases asserting claims under the Takings Clause;
• Valuation standards in tax lien sales and resulting takings litigation; and
• Strategic decisions in ongoing and future foreclosure disputes.

A decision is expected by the end of the Court’s Term in June 2026.

Who to Contact?

Matt Abee, Randy Saunders, Carl Fumarola, and Jonah Samples with the Nelson Mullins Tax Lien Resolution and Litigation Team are available to answer questions about how Tyler v. Hennepin County or Pung v. Isabella County, Michigan may impact tax sale investors, servicers, and others in the industry.  Please reach out to Nelson Mullins for more information about how you may be able to seek to address claims for just compensation or excessive fines as a part of your investment in tax liens.

These materials have been prepared for informational purposes only and are not legal advice.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.  As portions of this alert may have been created with the benefit of artificial intelligence or large-language models, Internet subscribers and online readers should not act upon this information without seeking professional counsel.