What the US Supreme Court’s tax sale ruling means for Baltimore

A U.S. Supreme Court ruling on Tuesday is likely to continue to allow controversial sales of Maryland real estate that has fallen in foreclosure over back taxes, a problem that has plagued many Baltimore homeowners for years.

Justice Samuel Alito wrote the decision on behalf of the court’s nine justices, finding that the current tax sale system generally works if a homeowner’s compensation is based on a fairly conducted auction.

“The auction price is the proper baseline, at least when the procedure is fair in light of our country’s history of tax sales,” Alito wrote. “Nothing less, and nothing more.”

The case now gets sent back to a lower court to decide whether the plaintiff from Michigan had his family’s house auctioned off fairly under the new ruling.

The nation’s high court’s embrace of the current system is expected to impact Baltimore, where thousands of households fall behind on their bills each year and become eligible to have their debts auctioned to third-party tax collectors. To reclaim their properties, homeowners must pay back the investors with fees and interest or risk losing their houses and any equity in them through foreclosure.

Proponents of the system have said that it’s an effective way for counties and cities to recover much-needed tax revenues and take action on delinquent properties. But they’ve caused particular trouble in Baltimore.

Homeowners who lost their homes with outstanding liens are entitled to receive only the difference between the auction sale price and the tax-related debt. That means that a relatively small tax bill — sometimes just a few hundred dollars — can put at risk tens or hundreds of thousands of dollars worth of property and equity.

The system has long angered city homeowners, who have complained about not receiving proper notice of their past-due taxes and about being subjected to government errors outside of their control.

A 2023 Baltimore Banner investigation found that some 41,000 homes since 2016 have had their liens sold at tax sale, almost exclusively in predominantly Black neighborhoods.

A 2024 federal court case brought by a West Baltimore community group and a former Northwest Baltimore homeowner challenged the process as unconstitutional. The plaintiffs agreed to pause the case earlier this year when Mayor Brandon Scott’s administration agreed to make changes to the system.

Advocates who championed reforming Baltimore’s tax sale process have long awaited a decision in the Michigan case.

Allison Harris, Director of the Home Preservation Project at the Pro Bono Resource Center of Maryland, criticized Tuesday’s ruling as “disappointing” and overly narrow.

Maryland’s homeowners who are at the greatest risk for tax foreclosure will continue to suffer the consequences, Harris said in a statement, especially older adults and those experiencing financial hardships.

The current system of tax sales, she said, “cannot be construed as a ‘fairly conducted’ process.” But the challenge is that the Supreme Court now requires such a process, but did not define what a fair process actually means, Harris added.

The Supreme Court case centered on Michigan’s Michael Pung, whose family home was foreclosed upon in 2015 over an unpaid tax debt worth about $2,242 on a house that later sold for close to $200,000. Tax assessors also ignored a court ruling saying that the tax bill was unwarranted.

The homeowner’s family sued, saying their constitutional rights had been violated because the proceeds given back to the family for the sale of the foreclosed home were based on the auction price of $70,000 — and not its full market value, which was significantly higher.

Justice Alito, in his opinion, wrote that Pung can continue to challenge the validity of the procedure that produced the $70,000 auction price. But the justice also wrote that the Constitution does not entitle Pung to more than the auction surplus.

Justice Alito went on to say that mandating fair-market value of each property auctioned at tax sale would “impose unprecedented burdens” on counties and municipalities, and may be subjective anyway. Meanwhile, he argued, as homeowners and tax assessors likely disagree over what counts as fair market value, the problem of an unresolved tax bill would go unresolved for even longer.

Justice Thomas concurred with the majority opinion but bashed the Michigan tax assessor’s errors, writing that the family clearly did not receive fair compensation.

“For a mere $2,242 debt, the County proceeded immediately to the seizure of the Pungs’ entire $194,400 home,” Thomas wrote. That, regardless of history, he wrote, “was wrong, and, on my initial view, likely unconstitutional.”

U.S. District Judge Brendan Hurson ruled similarly last year in Baltimore’s federal tax sale case, saying that the plaintiffs credibly alleged that they were not provided just compensation for their properties, which were foreclosed upon in 2021 and 2023 after moving through Baltimore’s tax sale system. He stopped short, though, of positing what a fair amount would have been.

To pause the lawsuit from proceeding, the city agreed earlier this year to create and roll out payment plans for debtors and raise the minimum bid amount for each property at auction.

Lee Ogburn, Maryland Legal Aid’s advocacy director for impact and appellate litigation, offered some clues into what a fairly conducted tax sale might look like moving forward.

“If just compensation is to be measured by the price achieved at a tax-sale auction, the auction must be conducted in a manner that produces bids based on the value of the property, not on the value of collecting a debt,” Ogburn wrote in an amicus brief in the Pung case.

This story may be updated.