Editor's note: This story was produced for the ear and designed to be heard. If you're able, WCMU encourages you to listen to the audio version of this story by clicking the LISTEN button above. This transcript was edited for clarity and length.
Jaden Gibson: Oral arguments are set to begin tomorrow morning in a U.S. Supreme Court case that centers on the tax foreclosure of a mid-Michigan home. The years-long, convoluted legal battle could redefine how property owners are compensated by government bodies after they seize someone's property and resell it.
And as WCMU's Rick Brewer explains, the case could also push the limits on the meaning of an excessive fine in the Constitution.
Rick Brewer: Timothy Pung bought a home in Union Township, just west of Mount Pleasant in 1991. Shortly after, he was granted a tax exemption on the property, otherwise known as a PRE: primary residence exemption.
Phil Ellison: And what it provides is that if you live in a primary residence, there's certain local taxes, that you don't have to pay.
RB: That's Phil Ellison, the Pung family's attorney. Ellison says people get PREs because their secondary property, like a small business, already pays local taxes. But when Timothy's son inherited the home in 2008, a multi-year dispute ensued with Isabella County over whether the tax exemption placed on the home still applied. A local tax tribunal ruled that it did.
Still, county officials argued that the Pung family owed back taxes on the home. Attorneys for Isabella County said local officials tried to work with the Pungs for seven years to collect the taxes, and that they had a right to appeal but never did. So, the family was evicted and the home was foreclosed.
PE: It resulted in the Pungs losing their property over about $2,000.
RB: The county then sold the home at a public auction for $76,000, a common practice local governments use to retrieve lost tax revenue and process foreclosed homes back into the market.
PE: Most properties sell at property auctions for pennies on the dollar. They never sell at the full price this way.
RB: The Pung family then sued in federal court, which ruled they had the right to the surplus of the sale, around $74,000. That's because under the Fifth Amendment of the Constitution, a government body is not allowed to seize someone's private property without giving the owner, quote, “just compensation.” But according to Ellison, just compensation means fair market value, which amounted to $194,000 for the Pung's home. Ellison also says the actions by Isabella County were a form of punishment and was an excessive fine, violating their Eighth Amendment rights.
PE: The calculation that courts have to do when government goes in to take property, the beginning of that calculation is fair market value, not reduced auction prices.
RB: If the court agrees with Ellison that just compensation as written in the Constitution means fair market value, it could create a whole new process all government bodies across the country have to follow and change who is on the hook to make sure property owners are compensated justly. Legal scholars say this raises a lot of questions. Kyla Stepp is an associate professor of political science at Central Michigan University who specializes in constitutional law.
Kyla Stepp: And does this mean that when the government seizes property, they always have to try to ascertain fair market value? They have to go through a normal sale process? They can't do auctions anymore, which are always going to be at reduced prices?
RB: But that's not how the law works. said attorney Matthew Nelson in a statement to WCMU when discussing the Pung's demands to be compensated for the fair market value of the home. He represents Isabella County in this case.
In their brief filed with the U.S. Supreme Court, the county argues using fair market value as a measurement of just compensation has never been adopted by the High Court. Regardless of the precise nature of what is taken, the brief reads, surplus proceeds are just compensation.
Another one of the county's arguments can be boiled down to this: the Pungs did not pay their taxes and decided not to act. On the question of the possible Eighth Amendment violation, Saginaw Valley State University political science professor Kevin Lorentz says it will test the limits on the meaning of excessive fines and could be applied in a new context.
Kevin Lorentz: Does this actually move to the level of punitive punishments in civil matters such as real estate and so forth?
RB: In their court filings, attorneys for Isabella County say the Eighth Amendment claims do not apply here because property foreclosures are, quote, “not a fine.” Lorentz and Stepp both say the excessive fines could open the floodgates for new cases surrounding tax disputes of all shapes and sizes if the court rules with the Pung family.
I'm Rick Brewer, WCMU News.
