Dykema, a national law firm based in Detroit, successfully represented a coalition of Michigan local government organizations in a recent unanimous U.S. Supreme Court decision affirming the constitution does not require states to compensate former property owners based on the fair market value of property sold through a tax foreclosure.
In Pung v. Isabella County, the court adopted arguments advanced in Dykema’s amicus curiae brief, preserving longstanding state and local property tax foreclosure and rejecting a constitutional rule that could have required sweeping changes to tax administration nationwide, according to the law firm. |
Dykema’s Appellate Team represented the Michigan Association of Counties (MAC), the Michigan Municipal League (MML), the Michigan Townships Association (MTA), and the Michigan Association of County Treasurers (MACT) as amici curiae in support of Isabella County (area around Mt. Pleasant).
The court unanimously held the proper measure of “just compensation” under the Fifth Amendment is the amount realized through a fairly conducted tax foreclosure sale — not a property’s hypothetical fair market value — and rejected claims the process violated the Eighth Amendment’s Excessive Fines Clause.
The court found in a situation like Pung, where the property owner had years to take steps and avoid foreclosure, the auction sale price is “just” compensation under the constitution. The ruling allows state and local governments to continue the established and fair practice of returning to former property interest holders any sales proceeds in excess of taxes owed.
In its amicus brief, Dykema’s Appellate Team argued that expanding the court’s 2023 decision in Tyler v. Hennepin County into a nationwide fair market value requirement would improperly federalize state property tax systems, undermine legislative authority, generate extensive litigation, and disrupt the administrability and finality essential to state and local tax collection.
The court’s opinion adopted those core principles, concluding that neither history nor precedent supports imposing such a constitutional mandate and recognizing the significant financial burdens such a rule would place on state and local governments, along with taxpayers across the country, who pay their property taxes to fund schools, public safety, public health, roads, and local services.
“This decision provides important clarity for states and local governments that rely on established property tax systems to fund essential public services,” says Ted Seitz, a member in Dykema’s Lansing office and counsel of record for the amici.
“The Court recognized that Tyler protected a property owner’s right to surplus proceeds without creating a constitutional requirement to pay fair market value following a tax foreclosure sale.”
The court also recognized the practical consequences of the rule proposed by the petitioner, concluding that requiring governments to pay fair market value after every tax foreclosure sale could make tax sales impractical as a debt-collection mechanism and fundamentally alter longstanding state and local financial systems.
The decision marks another appellate achievement for Dykema’s nationally recognized Appellate and Critical Motions Practice, which regularly represents clients in appeals and constitutional litigation before state supreme courts, federal courts of appeals, and the Supreme Court of the United States.
The Dykema team was led by Seitz and Chantel L. Febus, with James Azadian, Andrew Hussey, Monika Harris, and David Ter-Petrosyan serving on the core team.
Overall, Dykema, which was founded in 1926 and today has 13 offices in the U.S., serves business entities nationally on a wide range of complex legal issues.
For more information, visit dykema.com.
