WASHINGTON — The Supreme Court on Tuesday rejected an effort to change tax foreclosure sales to let homeowners to keep more money when their property is sold to recoup unpaid taxes.
The high court ruled against a sweeping argument from a Michigan family whose house was sold for less than half its open-market value to cover an unpaid tax bill of just over $2,000. They argued the foreclosure violated their rights because the house would have fetched a higher price of nearly $200,000 if sold through typical real-estate channels.
The Supreme Court unanimously found that people aren’t entitled to recoup a “hypothetical fair market value” of homes sold at auction to cover unpaid taxes. Auctions are designed to be a relatively quick way to collect unpaid taxes, and requiring local governments to get the higher fair-market value might not work at all, Justice Samuel Alito wrote.
“The traditional rule, under which the taxpayer receives only the difference between the auction sale price and unpaid taxes, is ‘just,’” he wrote.
The sale, though, must be conducted fairly, he wrote. The justices sent the Pung family’s case back to lower courts to reassess the process used by Isabella County.
“The case isn’t over,” said Larry Salzman, vice president for litigation at the Pacific Legal Foundation, which represented the family. “The Pungs won the right to continue their fight in the lower courts.”
The county maintained that auction sale prices are always lower than open real estate transactions, in part because they typically require full cash payment rather than a mortgage.
Requiring foreclosure sales to match open-market prices would essentially end them, making it harder to ensure taxes that fund key government services are paid, Isabella County argued.
“We are confident the process Isabella County followed in this case exceeded what the law required,” said attorney Matthew Nelson, who represented the county. Officials make “herculean efforts to help homeowners avoid foreclosure. But at the end of the day, foreclosure is a tool that needs to remain in their toolboxes.”
The case comes about three years after another major foreclosure case where the justices ruled against local governments. The court found counties can’t keep tax sale proceeds beyond what the owner owes in unpaid taxes.
That case centered on a 94-year-old Minnesota woman whose county government kept about $40,000 in proceeds from the sale of her condominium after she failed to pay about $2,300 in taxes.
