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After Tyler, the Supreme Court Answers 'How Much?': Pung v. Isabella County Holds Tax-Sale Price, Not Fair Market Value, Is 'Just Compensation'

By Phillip Zagotti, J.D., CPA · Attorney and Certified Public Accountant

Published July 24, 2026 · Originally published at htx-legal.net

Three years ago the Supreme Court told local governments they cannot pocket the surplus when they seize and sell a home for unpaid taxes. The obvious next question — surplus measured how? — was answered on June 23, 2026 in Pung v. Isabella County, 609 U.S. ___ (2026) (No. 25-95), and the answer favors the government. The Court held that a delinquent taxpayer is entitled to the proceeds of a fair tax sale minus the debt, not the property's hypothetical fair market value. For a homeowner whose property sells at auction for a fraction of its worth, that distinction can mean losing tens of thousands of dollars in equity. Here is what Pung holds and how it lands on Texas property owners.

What did the Supreme Court decide in Pung v. Isabella County?

The Court held that the "just compensation" a taxpayer is owed under the Fifth Amendment's Takings Clause is the price the property fetches at a fair public tax sale, less the taxes and costs owed — not the property's fair market value. The property in Pung belonged to Timothy Scott Pung of Isabella County, Michigan; after his death, his uncle Michael Pung pursued the claim as personal representative of the estate. The delinquency came to $2,241.93. The county foreclosed and sold the home at auction for $76,008, though its assessed value was $194,400. The estate argued it was entitled to the difference between market value and the tax debt. The Court disagreed: what the Constitution guarantees is the surplus from the sale itself, so long as the sale procedure is fair. Writing for the Court, Justice Alito grounded the holding in the long history of tax sales, in which the sale price — not a hypothetical valuation — has traditionally measured what the owner is due. No Justice dissented. Justice Alito's opinion of the Court commanded eight votes; Justice Thomas concurred in part and in the judgment rather than joining in full, and Justice Gorsuch joined that separate opinion except as to one footnote. The Sixth Circuit's judgment was vacated and remanded.

How does Pung build on Tyler v. Hennepin County?

Pung is the sequel to Tyler v. Hennepin County, 598 U.S. 631 (2023), where the Court held that a government that keeps more than it is owed when it sells a tax-delinquent property commits a taking of the surplus equity. Tyler established the principle — you cannot keep the excess — but left the measurement open. Pung fills that gap. It confirms that the taxpayer is entitled to the surplus, and defines the surplus as sale proceeds minus the debt, rejecting the argument that the baseline should be full market value. So the two cases fit together: Tyler says the government must return the excess; Pung says the excess is measured by what the sale actually brings, not by what the property might have brought in an ideal market.

Why isn't a delinquent taxpayer entitled to fair market value?

The Court's concern was practical and historical. Requiring the government to pay out the difference between a property's market value and its sale price would, in the Court's words, make tax sales "untenable" — turning a mechanism for collecting unpaid taxes into one that forces the government to write checks for the gap between auction results and appraisals. Historically, the Court observed, the sale price has been treated as the measure of what a delinquent owner is owed, and the system of tax sales has been considered "just" in part because owners can generally avoid it by paying the tax or redeeming the property. In other words, the owner holds the power to prevent the loss, which is part of why the sale price, rather than a hypothetical valuation, sets the constitutional floor.

What is the "fair auction" caveat, and why does it matter?

The holding rests on an important condition: the sale must be fair. The Court expressly limited its rule to auctions that are fair "in light of our country's history of tax sales," and even the parties agreed that "blatantly unfair procedures — such as by conducting a sham sale or needlessly delaying a tax sale while real estate prices crashed" — would raise constitutional problems. The Court declined to define the precise contours of a "fair auction." Justice Sotomayor's concurrence, joined by Justices Gorsuch and Jackson, and Justice Thomas's separate opinion concurring in part and in the judgment, joined by Justice Gorsuch except as to footnote 1, both flagged that the fairness of the specific procedures was left open on remand. That caveat is where the next wave of litigation will live. A homeowner who loses substantial equity has a strong incentive to argue the sale itself was not fair — that the process suppressed the price — because an unfair auction takes the case outside the Pung rule and back toward a fuller recovery.

Does the Eighth Amendment require the government to return more?

No. The estate also argued that keeping anything less than fair market value amounted to an "excessive fine" under the Eighth Amendment. The Court rejected that theory. Under Austin v. United States, 509 U.S. 602 (1993), a forfeiture is a "fine" only if it serves at least in part to punish, and the Court found no historical evidence that returning only the sale surplus operates as punishment. So the Excessive Fines Clause does not require the government to hand back more than the surplus from a fair sale. Between the two constitutional theories, the Takings Clause is where the action is — and even there, the recovery is capped at the sale surplus.

How does Pung interact with Texas property-tax foreclosure?

Texas already returns excess proceeds, so Pung largely confirms the structure Texas owners work within rather than upending it. When a Texas property is sold at a tax foreclosure sale, the former owner can claim the excess proceeds — the amount above the taxes, penalties, interest, and costs — under Texas Tax Code Chapter 34, generally by filing a petition for those excess proceeds within two years of the sale. Texas also gives owners a right of redemption after a tax sale — a two-year window for a residence homestead or agricultural land, and a shorter period for other property — letting the owner buy the property back by paying the purchaser a statutory premium. Pung's practical significance for Texans is twofold. First, it confirms that the constitutional floor is the sale-price surplus, so protecting equity depends on either redeeming or ensuring the sale is fair, not on demanding market value after the fact. Second, the "fair auction" caveat gives Texas owners a constitutional argument to add to their state-law tools if a sale looks manipulated or the price is suspiciously low. For Houston homeowners and investors alike, the interplay between the federal floor and Texas's redemption and excess-proceeds framework is where the strategy lives.

Frequently Asked Questions

Can a county keep the extra money when it sells my home for unpaid taxes?

No. Under Tyler v. Hennepin County, the government commits an unconstitutional taking if it keeps more than the taxes and costs owed. The surplus belongs to the former owner. Pung v. Isabella County defines that surplus as the sale proceeds minus the debt.

Am I entitled to my property's full market value in a tax foreclosure?

No. In Pung v. Isabella County the Supreme Court held that just compensation is the price obtained at a fair tax sale minus the debt, not the property's fair market value. If the property sells for less than its market value at a fair auction, the constitutional recovery is limited to that lower sale-price surplus.

What makes a tax sale "fair"?

The Court did not fully define it, but it indicated that blatantly unfair procedures — such as a sham sale or needlessly delaying a sale while prices crash — would present constitutional problems. Whether a particular sale was fair is a fact question. The Court vacated and remanded Pung for the Sixth Circuit to take that question up, and it is likely to be the focus of future litigation.

Does the Eighth Amendment help a delinquent taxpayer recover more?

No. The Court held that returning only the sale surplus is not an "excessive fine," because it does not serve to punish under the standard from Austin v. United States. The Excessive Fines Clause does not require the government to return more than the surplus from a fair sale.

How does Texas handle surplus from a tax sale?

Texas lets the former owner claim excess proceeds above the taxes, penalties, and costs, generally by petition within two years of the sale under Texas Tax Code Chapter 34. Texas also provides a right of redemption after a tax sale, with a two-year window for a homestead or agricultural land.

What should I do if I'm facing a Texas property tax foreclosure?

Act before the equity is lost. Options include paying or arranging the delinquent taxes, redeeming the property within the statutory window, ensuring any sale is conducted fairly, and timely claiming excess proceeds if a sale occurs. Because the constitutional floor is the sale price, protecting value depends on these steps rather than on later demanding market value.

How North Star Law Firm Can Help

North Star Law Firm advises Houston-area property owners and investors on tax-foreclosure issues, including excess-proceeds claims, redemption rights, and challenges to unfair tax sales under the framework Tyler v. Hennepin County and Pung v. Isabella County set. The firm's attorney-CPA brings combined tax and analytical work to delinquency resolution and equity-protection strategy, and where the state or a purchaser overreaches, the firm handles tax and property litigation. For owners trying to resolve the underlying delinquency before a sale, the firm also advises on tax resolution options. Contact North Star Law Firm before a tax sale takes your equity.

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