Pung v. Isabella County · ¶35

To illustrate this problem, consider a hypothetical property with a fair market value of $100,000. Suppose the property owner falls behind on his taxes and owes $20,000 to the local tax authority. The government then seizes the property and sells it at a public auction for $60,000. Under the longstanding historical rule, the government would keep $20,000 to satisfy the tax debt and return to the prior owner $40,000—the surplus proceeds from the tax sale. But under Pung’s fair-market-value rule, the government would have to pay the owner $80,000—the property’s fair market value minus the value of the tax debt—even though that sum exceeds what the government obtained from the tax sale. Thus, under Pung’s rule, a tax sale to collect $20,000 in delinquent taxes would net the government a $20,000 loss—a loss paid out to the delinquent taxpayer himself. The possibility of such a perverse…

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