ISABELLA COUNTY, Mich. (WOWO) — A long-running Michigan tax foreclosure dispute is headed to the U.S. Supreme Court and could reshape how governments nationwide handle the sale of seized homes.

The case centers on an Isabella County property owned by the estate of Timothy Scott Pung, whose home was sold at auction after the county said $2,241 in back taxes and fees went unpaid. The property was sold for about $76,000, despite being assessed at $194,400 at the time.

The Pung family argues the county’s action amounted to an unconstitutional penalty by allowing the government to keep the difference between the tax debt and the property’s market value. Attorneys for the estate say homeowners should receive compensation equal to a property’s fair market value when it is seized and sold.

A federal district court previously ruled that the estate was entitled to surplus proceeds from the auction sale, minus the tax bill. The family, represented by the Pacific Legal Foundation, appealed, arguing that returning only surplus proceeds still deprives homeowners of significant equity according to Bridge Michigan.

Isabella County officials contend that requiring governments to pay fair market value would make tax foreclosure unworkable, increase costs and invite extensive litigation over property valuations.

The Supreme Court agreed in October to hear the case, with oral arguments expected in early 2026. The case follows a 2023 Supreme Court ruling that found governments cannot keep proceeds beyond what is owed in tax foreclosure sales.

Legal analysts say the new case could clarify whether governments must go further by compensating homeowners based on market value rather than auction results.

Industry groups, property rights advocates and organizations representing older Americans have filed briefs on both sides, arguing the decision could have wide-ranging impacts on property tax enforcement, local government revenue and homeowner protections.