U.S. Supreme Court, No. 25-95, decided June 23, 2026
Bottom line: In a fairly conducted tax sale, the Constitution requires the return of surplus proceeds, not payment of the property’s hypothetical fair market value. For New Jersey tax sale foreclosures, the decision supports the State’s post-Tyler procedure that allows owners or heirs to demand a sheriff’s judicial sale or Internet auction before final judgment to preserve any equity.[1][2]
Overview
The United States Supreme Court’s decision in Pung v. Isabella County is an important new case for anyone involved in tax sale foreclosure, including property owners, municipalities, and tax sale certificate holders. The case addresses a practical question: when property is sold because of unpaid real estate taxes, does the former owner receive the property’s full fair market value, or only the surplus generated by the sale after the tax debt is paid?[1]
The Court held that, in a properly conducted tax sale, the constitutional measure is the sale result, not a later estimate of what the property might have brought in an ordinary private-market transaction. In plain English, if the sale process is fair, the former owner is entitled to the money left over after the tax debt and proper charges are paid, but not automatically to the appraised value of the property.[1]
What Happened in Pung
The Pung family’s home in Isabella County, Michigan was assessed for tax purposes at $194,400. Local taxing authorities claimed that $2,241.93 in real property taxes remained unpaid. The County foreclosed, sold the property at public auction for $76,008, and initially kept all of the sale proceeds. The federal district court ruled that the County had to return the surplus proceeds, calculated as the difference between the sale price and the tax debt. The court rejected the argument that the family was entitled to the property’s full fair market value.[1]
The Sixth Circuit agreed. The Supreme Court then reviewed whether the Fifth Amendment’s Takings Clause or the Eighth Amendment’s Excessive Fines Clause required the County to pay more than the surplus proceeds.[1]
What the Supreme Court Decided
The Court confirmed that Tyler v. Hennepin County still matters. Under Tyler, the government may not simply keep surplus proceeds from a tax foreclosure sale. Surplus belongs to the former owner, not the government. But Pung clarifies that Tyler does not require payment of the property’s full fair market value every time a tax sale produces a lower sale price.[1][3]
The Court explained that tax sales have historically been treated differently from ordinary real estate sales. A tax sale is not designed to achieve the same result as a private listing with a broker, open-market exposure, negotiations, and time to wait for the best buyer. Its purpose is to collect unpaid taxes through a structured legal process. For that reason, the Court held that the proper constitutional baseline is the auction sale price, provided the tax sale is fairly conducted.[1]
The Court also rejected the argument that the Eighth Amendment required payment of fair market value. The Court held that returning only the surplus proceeds from a fairly conducted tax sale does not violate the Excessive Fines Clause.[1]
Why This Matters in New Jersey Tax Sale Foreclosures
New Jersey’s system is different from Michigan’s. In New Jersey, the initial tax sale generally involves the sale of a tax sale certificate, not an immediate sale of the property itself. The certificate holder may later file an action in Superior Court to foreclose the right of redemption after the statutory waiting period, subject to the requirements of New Jersey’s Tax Sale Law.[2]
New Jersey revised its Tax Sale Law after Tyler to address the preservation of owner equity. Under the amended law, the owner or the owner’s heirs may demand, in writing before final judgment, that the foreclosure proceed through a sheriff’s judicial sale or a sheriff Internet auction in order to preserve any equity in the property.[2]
If the owner or heirs do not demand a judicial sale or Internet auction, the certificate holder may proceed without such a sale, and the owner and heirs have no claim against the holder of the tax sale certificate for equity in the property. The statute also provides that the amount received through the judicial sale or Internet auction is conclusively presumed to be the property’s fair market value.[2]
That New Jersey statutory structure fits closely with Pung. The Supreme Court rejected a constitutional rule that would require payment of hypothetical fair market value rather than the result produced by a fair tax sale process.[1][2]
Practical Takeaway for Property Owners
For New Jersey property owners, timing matters. If a tax sale foreclosure complaint has been filed, the owner should not wait. Redemption rights, equity rights, and the right to request a judicial sale or Internet auction are all time-sensitive. Under New Jersey law, the right to redeem continues until barred by final judgment, and after the complaint is filed, redemption is made in the foreclosure action.[2]
New Jersey law also requires notice advising the owner that the owner or heirs may request a judicial sale or Internet auction to preserve possible equity, except in certain abandoned-property situations. That notice requirement is not just a technical formality. Pung repeatedly ties its holding to a fairly conducted tax sale, and the Supreme Court left open whether unfair procedures, such as a sham sale or improper delay, could raise constitutional concerns.[1][2]
Bottom Line
Pung v. Isabella County narrows the argument that every tax foreclosure sale must compensate the former owner based on appraised fair market value. For New Jersey tax sale foreclosures, the case supports the structure of New Jersey’s post-Tyler statutory scheme, especially the use of judicial sales or sheriff Internet auctions to preserve and determine equity when the owner or heirs timely request that process.[1][2]
The decision also reinforces a traditional principle: tax sale foreclosure is a lawful collection mechanism, but it must be done correctly.[1][2]
Disclaimer: This article provides general information about New Jersey tax sale foreclosure practice. It is not legal advice and should not be relied upon as a substitute for advice from counsel about a specific tax sale certificate, property, foreclosure action, or redemption issue.
Sources
- Pung v. Isabella County, No. 25-95, slip op. (U.S. June 23, 2026), Supreme Court of the United States. Source link
- P.L. 2024, c.39, New Jersey Legislature, amending the Tax Sale Law and related statutes. Source link
- Tyler v. Hennepin County, 598 U.S. 631 (2023). Source link