Pung v. Isabella County: What the Supreme Court’s Decision Means for Wisconsin Tax Foreclosures

For officials managing property tax collections over the past three years, the U.S. Supreme Court’s 2023 decision in Tyler v. Hennepin County changed the landscape of tax foreclosures. The Court ruled that local governments cannot retain the surplus equity of a tax-foreclosed property, necessitating a fundamental shift in the administration of delinquent taxes.

While the Wisconsin legislature acted swiftly to facilitate compliance through state-level reforms, a substantial financial vulnerability remained: Does the Constitution require a county to compensate a delinquent former owner for the property’s hypothetical “fair market value,” or merely for the actual surplus proceeds generated from a tax sale?

If the former applied, municipalities would be compelled to guarantee private market outcomes using public taxpayer dollars, a scenario presenting severe fiscal risks to local budgets.

Fortunately for Wisconsin Counties, on June 23, 2026, the Supreme Court resolved this ambiguity in Pung v. Isabella County. The decision offers critical protection to local governments. This article provides an overview of the Pung decision and its operational implications for Wisconsin counties (which serve as the municipalities responsible for tax foreclosures) moving forward.

The Legislative Landscape

The 2021 Tyler v. Hennepin County decision established that retaining surplus proceeds following a tax sale constitutes an unconstitutional taking. In response, the state enacted 2023 Wisconsin Act 207, revising Wis. Stat. §§ 75.36 and 75.69.

Act 207 established a revised statutory framework, mandating that counties sell tax-deeded properties within specific timeframes and remit any excess proceeds to the former owner after the county recovers back taxes, interest, and administrative costs.

However, a significant practical challenge remained for county finance committees and treasurers. If a property sells at auction for less than its fair market value, has the municipality taken the difference between the sale price and the fair market value? If found to be a taking, a Wisconsin County taking a property through an in rem foreclosure or tax deed would be forced to fund the shortfall directly from its general fund.

The Pung Decision: The Auction Price Sets the Baseline

In Pung v. Isabella County, the estate of a deceased homeowner owed approximately $2,242 in taxes. A Michigan county foreclosed and sold the property at auction for $76,008, despite a tax assessment of $194,400. The plaintiff filed suit, demanding compensation based on fair market value rather than the auction surplus, arguing that the County had illegally taken the difference from them.

The Supreme Court rejected the fair market value theory. The Court held that the proper measure of “just compensation” is the actual auction price (minus the outstanding tax balance), provided the sale is fairly conducted.

In doing so, the Supreme Court affirmed that returning the “overplus” (the auction price minus the tax debt) to the former property owner fully satisfies County’s constitutional obligation. The Court recognized that adopting a fair market value rule would impose unprecedented burdens on local jurisdictions. It would turn routine tax collection into endless appraisal litigation, ultimately shifting the burden onto law-abiding taxpayers to make up the difference. Further, the Court also dismissed arguments that standard tax foreclosures constitute an “excessive fine” under the Eighth Amendment.

Operational Impacts for Wisconsin Counties

For Wisconsin local governments, Pung serves as a definitive validation of the statutory framework implemented over the past two years. 

By mandating the sale of tax-deeded properties and the remittance of excess proceeds, the procedures outlined under Wis. Stat. § 75.36 operate firmly within the constitutional boundaries established by Pung. Counties do not need to budget for hypothetical equity payouts if a property underperforms at auction.

While Pung shields municipalities from fair market value claims, the Court added a critical caveat: “the auction price serves as the proper baseline at least when the sale is fairly conducted.” Local governments must strictly adhere to the procedural requirements of Wis. Stat. § 75.69. Whether utilizing open bids, closed bids, or licensed real estate brokers, public notices and commercially reasonable practices must be meticulously executed. Any procedural deficiencies or lack of transparency in the auction process invites litigation alleging the sale was not “fairly conducted.”

Municipalities are largely insulated from litigation disputing assessed value versus final auction value. Provided local governments strictly adhere to statutory foreclosure and sale processes, the market, not a retroactive judicial appraisal, dictates the compensation.

Conclusion

Pung v. Isabella County ensures that local governments are not penalized for the realities of the real estate market. By clarifying that “just compensation” equals the surplus proceeds of a fairly conducted sale, the Supreme Court has insulated municipal budgets from staggering fiscal liabilities.

The directive for local officials is straightforward: continue to rigorously execute the sale and surplus-return procedures established under Act 207. Strict compliance ensures that municipal tax foreclosure processes stand on secure constitutional ground, thereby protecting taxpayer resources. To discuss how West & Dunn can assist with tax foreclosure or other municipal law matters, contact us at 608-535-6420 or visit our Contact Us page.