Justices appear dubious of challenge to constitutionality of foreclosure sales

[Yo_Mama_Been_Loggin]

Source: SCOTUS Blog

The argument yesterday in Pung v Isabella County had two distinct threads. On the one hand, the justices who discussed the question presented seemed to have no doubt that they would reject the idea that the customary practice of selling real estate at an auction to recover delinquent taxes amounts to a taking without just compensation. On the other hand, multiple justices were incensed at what appeared to them to be the high-handed treatment of the taxpayer by the local government.

On the legal question, the complaint of the taxpayer (Michael Pung) is that when the county sold his property at a foreclosure sale based on unpaid taxes, the price at the foreclosure sale was less than the fair-market value of the property. In his view, that means that the takings clause of the Fifth Amendment (that “private property” shall not “be taken for public use, without just compensation”) requires the county to compensate him for the shortfall – to write him a check for the difference between the fair-market value of the property (estimated by an appraiser) and the price it sold for when the county auctioned it at a public sale.

During oral argument, the justices identified several difficulties with Pung’s position. For one thing, Pung is challenging the constitutionality of something that pretty routinely has been going on in every American jurisdiction since before the adoption of the Constitution. So it wasn’t entirely unfair of Justice Clarence Thomas to ask Philip Ellison (Pung’s counsel), in the first question of the morning, what he would “do with the fact that the English and American legal traditions seem to permit these sorts of foreclosures?” In a similar vein, Justice Sonia Sotomayor challenged Ellison to “[g]ive me a holding from a court in our 250-year history where we have said that the measure … on a tax foreclosure is fair market value, not the auction price.”

Another issue, related to the first one, is that accepting Pung’s position probably would bring an end to the use of foreclosure sales to force the payment of taxes. As Justice Elena Kagan pointed out, repeatedly, the logic of Pung’s position is that when the government has sold the property of the delinquent taxpayer at an auction, then, in the normal case where the distressed sale at an auction does not produce the fair market value, the jurisdiction would have to come out of pocket and use other funds to repay the delinquent taxpayer for the “shortage” at the sale. Justices Ketanji Brown Jackson and Amy Coney Barrett seemed particularly taken with this problem, finding it unfair to suggest that other taxpayers, the ones that are not delinquent, should have their taxes paid to compensate those that refused to pay their own taxes. As Jackson commented, it “seems like real unfairness” to “the rest of the American people, that we are paying you because you didn’t pay your taxes and the government had to foreclose on your house.”

Read more: https://www.yahoo.com/news/articles/justices-appear-dubious-challenge-constitutionality-153000589.html

[moniss]

1. Interesting case and issues. I will say that

I have known of small town cases where the bidding is not "sealed bid" but rather open bidding and the sales ended up being rigged. The person running the auction looks into the audience for his "designated buyer" and when the bidding starts it almost immediately ends with the "auctioneer" banging the gavel and saying "sold" and identifying his designated buyer by bidder number etc. and the property is sold for pennies on the dollar.

People saw this go on despite there being other bidders calling out bids. No "going once, going twice" out of the mouth of the "auctioneer" who many times is the sheriff. These things were long ago before video and cell phones etc. so maybe the crooked "tax sale" to benefit a pal or relative is less prevalent.

Lack of uniformity in the laws and conduct of tax foreclosure sales from jurisdiction to jurisdiction has also been a problem. In many respects it still is.

[cstanleytech]

3. On the other hand it's still avoidable largely as long as people pay their taxes.

[louis-t]

4. We had a case here in MI during the recession.

Macomb County, where I live, had their annual tax lien auction. Buyers drove for hours to get there. They held it at an amphitheater. Before the start of the auction, the auctioneer asked the fairly large crowd "Is there anyone who wants to buy all of these properties today?" One hand went up. I think it was fixed, all done in advance. I don't know how they came up with a price. 750 properties, mostly small 2 or 3 BR homes in an area with a lot of rentals. This guy put all of the houses on the market at once, which drove prices down at a time when all prices were already down 40 or 50%. He didn't empty the houses, they were full of trash. He made the buyers pay the transfer tax and title insurance. He offered very small commissions. Realtors like myself refused to show the houses. At least half of the houses were on the market for 2 years. He got many nuisance tickets for trash, overgrown lawns, odors and critters. I hope he lost his ass.

[MichMan]

2. Seems logical that fair market value is what it actually sells for, not some arbitrary theoretical appraisal

Perhaps the plaintiff should have just paid his taxes like the rest of us do.

[dickthegrouch]

5. Equity should be considered

If I lost my house after many years of mortgage payments and with significant equity, I might have difficulty paying property taxes after, say a medical issue, or loss of a job. Then I’d be outraged if the house were sold for less than my equity.
Justice is barely served in some of these cases.