By The Briefcase Team | May 4, 2026

There is a Supreme Court case nobody in real estate is talking about that could detonate the entire $14 billion American tax sale industry by the end of June. It is called Pung v. Isabella County, docket 25-95, and the fact pattern is so absurd it convinced Justice Jackson to compare a Michigan tax assessor to Inspector Javert. Out loud. On the record.

Pour something strong. We are going in.

Thirty-five years ago, Scott Pung bought a 3,000 square foot house in Isabella County, Michigan, filed for the Principal Residence Exemption that knocks out a supplemental property tax for actual residents, and got it. Two decades pass. Life is fine.

Then a county assessor retroactively denies the exemption and sends a bill for $1,600. The Pungs dispute it. The Michigan Tax Tribunal rules for the Pungs. Assessor keeps assessing. They go to court. Court rules for the Pungs. Assessor keeps assessing. You see where this is going.

In 2015, while the Michigan Court of Appeals is literally about to issue another opinion saying the Pungs do not owe the tax, Isabella County forecloses on the home over $2,241.93 in disputed taxes. They do not tell the family lawyer. They do not tell the appeals court. The home, assessed at $194,400, sells at auction for $76,008. The county takes its $2,241.93 it had been told repeatedly was not owed, and pockets the rest.

After Tyler v. Hennepin in 2023, the Pungs got $73,766 of the auction surplus back. The county still kept $118,392, the gap between fire-sale price and actual value, and called it a day.

The question now in front of nine justices: when the government takes your home over a tax bill it knew was bogus, sells it at a third of value, and tells you "tough, that is your compensation," is that constitutional?

The Fifth Amendment says property cannot be taken without "just compensation." In Tyler v. Hennepin County (2023), a 9-0 Court ruled that Hennepin County could not pocket the $25,000 surplus from selling Geraldine Tyler's condo over a $15,000 tax debt. Surplus equity belongs to the homeowner. Settled.

Pung asks the question Tyler dodged: what if the auction itself is the rip-off? What if a forced, badly marketed sale generates a price that is half of fair market value, and the government calls that "just compensation"?

The Pungs say compensation has to mean fair market value. Isabella County says auction price is good enough.

Justice Sotomayor, per the transcript, called it "fundamentally unfair." Justice Gorsuch called the facts "striking" and asked, with audible disbelief, how a $2,000 tax bill leads to taking a house. And then there was the moment now being replayed at every property law happy hour from D.C. to Detroit. Justice Barrett, to the county's lawyer:

The lawyer said yes. He had to. That is the rule on the books.

PLF has documented Michigan cases where the underlying debt was $8.41. Eight dollars and forty-one cents. Uri Rafaeli, 82 years old, made a rounding error, and Oakland County took his rental house, sold it for $24,500, and kept all of it.

When your legal theory requires you to tell Amy Coney Barrett "yes, we would take a house over $100," you are losing the room.

Then Justice Jackson dropped the hammer:

When you have lost the literary metaphor war with KBJ, you are having a bad week at One First Street.

Here is the part every real estate investor needs to read twice.

There is a quiet, well-capitalized industry that exists specifically to bid at tax foreclosure auctions, win at depressed prices, and pocket the spread. Even after Tyler, Realtor.com reports that five states (Alabama, Arizona, Michigan, New Jersey, New York) still run what PLF calls "shadow equity theft" regimes. They technically comply with Tyler by saying the homeowner is "entitled" to the surplus, then bury that entitlement under tight deadlines, technical court filings, and 5 percent "sales commissions" the average foreclosed-on family cannot navigate.

The system is designed so most homeowners never claim the surplus. The equity quietly transfers, by procedural default, to the bidders.

Worse for those bidders: the Nebraska Supreme Court and a Maryland federal court have already ruled that private investors in these systems can be "state actors" personally liable under Section 1983 civil rights law. Both rulings are post-Tyler. Both are now hanging over every tax-lien fund in America.

If the Pungs win, auction price stops being a constitutional safe harbor. Investors who bought below market value face years of clawback litigation. The math gets ugly fast.

Tax collection is legitimate. Schools, fire departments, libraries. Nobody serious wants to abolish foreclosure for unpaid taxes.

But the government does not get to recover more than what it is owed. That is not tax collection, that is profit on the back of a constitutional protection that has existed since 1791. Markets work when prices reflect value. Forced auctions, by design, suppress value. Letting the state pocket the gap between suppressed price and real worth is a wealth transfer from the most defenseless property owners in America to whoever showed up at the courthouse with a checkbook.

Fair market value, no more and no less. That is the answer.

The decision itself. A ruling is expected by late June 2026. Read of the room: the Pungs probably win on something, but the Court may go narrow, possibly remanding on what makes an auction "procedurally fair." Even a narrow win reopens hundreds of post-Tyler foreclosures.

The state legislative response. Those five "shadow equity theft" states are about to get litigated either way. The only question is how fast.

The tax-lien fund industry. A pro-Pung ruling reprices the entire asset class. Yields drop, litigation risk spikes, some funds wind down. If you are an LP in any vehicle whose deck mentions "tax certificate" or "auction surplus," call your GP this week. They should already have a post-Pung plan. If they do not, that is the answer.

Mike Pung, 65, inherited the fight when his brother Scott died. He is not a libertarian foundation or a real estate investor. He is a guy whose family was wronged for $118,000 over a tax bill two courts said was never owed, and he has spent 11 years getting it to Washington.

The Supreme Court will decide before summer whether what happened to him is constitutional, or whether American tax foreclosure needs to look a little more like a market. Billions in lien portfolios, the tax bases of thousands of counties, and the principle that the government cannot keep more of your equity than it is owed all hang in the balance.

Stay tuned. June is going to be loud.