After Deborah Foss fell behind on property taxes on her two-unit house in New Bedford, the city sold her debt to an outside company, which pursued the $30,000 the retired grandmother owed.
But rather than simply recouping the debt, according to her lawyers, Foss fell victim to an overly punitive state law that cost her the entire house, valued at $241,600 — far more than was needed to settle her debt — and left her temporarily homeless last winter.
Massachusetts is one of a dozen states that allows a practice critics refer to as “home equity theft.” If a home is foreclosed on due to unpaid property taxes, the municipality — or a company that buys the tax debt — can sell the home and keep the profit, even if the sale price is more than the taxpayer owes.
The system often disproportionately and unfairly punishes elderly homeowners. Of course, people need to pay taxes. Municipalities should be allowed to recoup the costs they incur in collecting those taxes if a homeowner is delinquent, including by seizing a home.
But municipalities and investors should not be allowed to reap a windfall of hundreds of thousands of dollars without returning money to a homeowner who had equity in their property.
“It’s anti-consumer and it’s unconstitutional and it’s unethical,” said Al Norman, an advocate for seniors who is urging lawmakers to change the law.
The New York Times recently reported on the story of a New Jersey woman who burned down her home after the equity was taken from her. In Massachusetts, the practice of seizing equity is not uncommon.
The libertarian-leaning, California-based Pacific Legal Foundation, which is leading the charge against the practice nationally, collected data from 31 Massachusetts municipalities. It found that between January 2014 and June 2020, local governments sold 254 homes and recouped $60 million more than the owed tax debt. Another 154 homes were foreclosed on between January 2014 and December 2020 by a private company, Tallage, that bought the tax debt from municipalities. Those homeowners lost an estimated $37 million in equity.
“In no other debt process can the debt collector take more than it’s owed. That’s fairly clear injustice,” said Joshua Polk, an attorney with the Pacific Legal Foundation.
Indeed, if Foss had fallen behind on a mortgage debt, the outcome would have been much different. If a homeowner defaults on a mortgage, the bank can foreclose, sell the property, and take what is owed. But any additional profit returns to the homeowner.
This issue of losing equity applies to properties where there is no mortgage, which is why it often involves older homeowners who have paid off their mortgage but fall behind on taxes.
The US Supreme Court may decide the legality of seizing home equity. The court will hear oral arguments in April in Tyler v. Hennepin County, a case involving a Minnesota woman, Geraldine Tyler, 94, whose condominium was sold by the local government for $40,000 to cover $15,000 she owed in taxes, interest, and fees. The Pacific Legal Foundation, which represents Tyler, is arguing that allowing government to keep more money than is owed violates constitutional prohibitions on taking private property without compensation and levying excessive fines.
The Pacific Legal Foundation is also pursuing a case in US District Court in Massachusetts involving a Bolton alpaca farmer. Previous Massachusetts cases have settled or been resolved without a decision on whether the law is constitutional.
Before a court ruling is imposed on the state, legislators should address home equity theft in a way that is fair to municipalities and homeowners.
Municipal officials say there needs to be an incentive to convince chronic tax scofflaws to pay. Geoff Beckwith, executive director of the Massachusetts Municipal Association, said towns need a way to recoup costs because the process of collecting delinquent taxes is expensive and time-consuming. Beckwith said some communities outsource tax lien collection because they do not have resources to focus on it, and the company that buys the debt must be allowed to profit for it to be financially worthwhile. “We’re talking about how we have equity for all taxpayers by having a system that compels delinquent property taxpayers to pay their fair share,” Beckwith said.
But most states have figured out a way for communities to collect delinquent taxes and cover the costs of collection without taking all of a homeowner’s equity. Some states charge high interest rates on overdue taxes or impose additional fees during foreclosure. Massachusetts’ interest rate on unpaid taxes is 14 percent, increasing to 16 percent once a lien is placed.
Bills pending in the state Legislature would change the law so that if a home is foreclosed on, the homeowner would get any money left after debts are paid. Bills filed by Democratic Representative Jeffrey Roy, Senator Jo Comerford, and Senator Mark Montigny also include additional safeguards for homeowners, like extra judicial proceedings and more explicit notice.
The Massachusetts Municipal Association and the Massachusetts Collectors and Treasurers Association have urged lawmakers to convene all interested groups in a discussion rather than approve these bills. Rather than waiting for lawmakers to act, the interested parties — homeowner advocates, legal aid organizations, land court officials, municipalities, tax collectors, and companies that buy tax debt — should work together now to reach agreement.
Provisions relating to notice, for example, should be crafted in a way to provide sufficient notice to homeowners without unduly burdening towns. There might need to be better education to ensure homeowners know their options — like entering a tax deferral program that lets elderly, low-income seniors defer paying property taxes until their home is sold or inherited. If a bill eliminates the taking of equity, the parties should consider what interest rate, fees, and penalties should be imposed on homeowners to ensure municipalities are compensated for foreclosure costs. There may also need to be better regulation of companies that buy tax debt, like Tallage, which recently drew scrutiny from The New Bedford Light for its aggressive tax collection efforts, reaping large profits off small debts.
While there is room to negotiate details, any agreement should end the practice of home equity theft. Everyone needs to pay their fair share of taxes — but the current system leaves some paying far, far more.
Editorials represent the views of the Boston Globe Editorial Board. Follow us @GlobeOpinion.