Sometimes my reaction to a court decision, even a Supreme Court decision, is just a sense of relief that the Court has reaffirmed that the law is what you have always thought it to be. The United States Supreme Court’s recent decision in Estate of Pung v. Isabella County is just that kind of decision.
While the specific facts of the case contain exactly the kind of bad facts and stubborn behavior that sometimes lead Courts to fashion equitable remedies that really muddy the playing field, the Court focused on bare procedure and historical precedent to arrive at their result essentially affirming 100 years of legal procedure, but leaving the door open to the lower courts to judge the particulars concerning due process.
Scott Pung owned and occupied the home that was the subject of the case, before passing away in 2004. Several years after his death, the tax assessor for Isabella County declined to continue taxing the Pung home as a primary residence because the estate (or its heirs) did not follow proper procedure (as the assessor saw it) to file an affidavit establishing that the heir living in the property still qualified for the partial tax exemption.
The Pung estate successfully challenged the assessor’s decision for the tax years 2007-2011 before a Michigan state tax tribunal. Despite Pung’s victory, the assessor apparently persisted in her position and denied the partial tax exemption for the 2012 assessment year.[1] The Pungs apparently failed to timely contest the tax assessor’s decision to deny the partial tax exemption again in 2012.
While the Pungs paid the 2012 tax bill assessing the home as a primary residence, but refused to pay the supplemental tax bill of $2,241.93.[2] The County began proceedings to collect the unpaid tax through sale of the property. While there may be some question as the sufficiency of notices, the Pungs ultimately did not pay the tax, redeem the property, or otherwise take action to stop the sale. The home sold at public auction to a third party for $76,008.00. The appraised tax value of the property was approximately $195,000.
The Pungs filed suit claiming that the tax sale did not realize the fair market value of the property. [3] The Pungs asserted that the 5th and 8th Amendments required the state to compensate them for the fair market value if it wished to take their property to meet their tax sale. Astonishingly, the Pungs argued that the County, and by extension any government entity conducting a public sale, must make up the difference between the realized tax sale price at the auction and the fair market value of the property under ideal sale conditions. To put it more clearly, the Pungs argued that the County must pay them the roughly $120,000 dollars difference in what the tax sale actually yielded and what the Pungs asserted was the true value of the property. Essentially, they argued the County should pay them $120,000 for the privilege of collecting their $2,000 deficient tax liability.
The Court unanimously rejected the Pung’s argument on both constitutional grounds. Citing the fact that the right of the state to liquidate property to pay tax debts dates back to colonial days and perhaps Magna Carta, the Court did not find anything compelling about the Pung’s arguments.
While a tax sale may inevitably be a distressed sale in most real estate markets, the Court reasoned that the Pungs and any taxpayer has an opportunity to avoid such an outcome. With significant equity in the property, the Court noted that the Pungs could have borrowed money to redeem the property by paying the tax and that they alternately had ample time to market it themselves for a fair price.
The Pungs may still have an opportunity upon remand to contest whether the County’s procedure was properly carried out and whether its actions were fair under the context of the previous litigation between the parties. But SC dirt lawyers and anxious title underwriters can rest easy knowing that what they understood was the rule forever will remain the rule going forward. Sometimes that’s a pretty good result.
[1] Justice Thomas’s concurring opinion stated that the County’s advocate could offer no explanation for why the Assessor persisted in denying the partial exemption after the Tribunals reversal as to the prior tax years, but it apparently stemmed from the Pungs continued refusal to submit an affidavit establishing primary residency.
[2] Whether you consider the Pungs apparent refusal to submit the affidavit of residency to the assessor or pay the assessed tax over the next two years to be strongly principled or head-scratchingly foolish might depend on your readings of the facts.
[3] It is the rare foreclosure or distress sale that returns fair market value of a sale conducted under ideal conditions. There are as we know a more limited pool of bidders and title problems associated with these kinds of sales.
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