IN LATE MAY, the US Supreme Court ruled in favor of 94-year-old Geraldine Tyler, a Minnesota woman who did not get the surplus back after her condo was foreclosed on and sold off for $40,000 — $25,000 more than what she owed.
By keeping the excess, the court held the Minnesota county where Tyler lived violated the “takings clause” of the Fifth Amendment of the US Constitution, which states that private property cannot be taken for public use without just compensation.
“The taxpayer must render unto Caesar what is Caesar’s, but no more,” wrote Chief Justice John Roberts in an eloquent summation of the court’s unanimous decision.
In Massachusetts and the 11 other states that seize property in much the same fashion, Caesar has clearly overstepped.
Critics call the practice “home equity theft,” and it is a scenario that often plays out with the poor, the elderly, and the infirm. Lawmakers on Beacon Hill are moving to change the law going forward, to bring the state into compliance with the Supreme Court decision, but there’s also a very real possibility that the people who have had their equity stolen will file suit to reclaim it, which could cost cities and towns across Massachusetts millions of dollars.
Joshua Polk, an attorney with the libertarian Pacific Legal Foundation, which brought the successful Supreme Court case, said he is aware of a number of Massachusetts lawsuits that are in the works, either as class actions or as individual cases, to get the former homeowners back the excess financial equity that they lost. “Some of the cases involve several hundreds of thousands of dollars in equity,” he said.
The Bay State may see fallout similar to Michigan, where 43 counties agreed to a settlement in a class action lawsuit just after the Supreme Court ruling was issued. The counties must pay back up to $2 billion to the once homeowners from whom they kept the surplus after foreclosing on and selling their homes. The settlements require the counties to give back 80 percent of the excess from the sale of foreclosed homes that took place between 2013 and 2020.
Lawmakers for years in Massachusetts have tried to change the law with no success. Now, in the wake of the Supreme Court decision, sentiment appears to be shifting. Sen. Susan Moran, co-chair of the Legislature’s Joint Committee on Revenue, said it’s time for a change.
“Folks are in the situation where they fall behind, really not always understanding what their rights are, not always understanding the gravamen of the situation, and doing the best they can to get ahead and try to pay their family bills,” said the Falmouth lawmaker. “And the idea that, for years, the companies that were doing the foreclosures would be keeping the equity is just something that I think is unconscionable.”
BAY STATE RECKONING
The Pacific Legal Foundation, drawing on data from a variety of sources, provides some clue to the financial exposure faced by the state’s three largest cities — Boston, Springfield, and Worcester.
According to the data, which covers the period from January 2014 to December 2020, Boston foreclosed on and sold off 45 homes in which the homeowners lost a total of $12.2 million in equity, while owing only $1.6 million in taxes, interest, and fees to the city. The average home equity loss was $419,201. Thirty-six of the homes were in Dorchester, six in Mattapan, two in Roxbury, and one in Roslindale.
Boston Mayor Michelle Wu’s public records office said in a statement that the city “cannot confirm” the data provided by the Pacific Legal Foundation.
Springfield foreclosed on and sold more homes (129) than any of the 21 Massachusetts municipalities studied in-depth by the foundation. This resulted in the largest total equity loss by homeowners in these municipalities — $15 million — but they owed the city only $3.5 million in taxes, interest, and fees. The average home equity loss was $119,041. The McKnight Historic District had the largest rate of homes foreclosed and sold (22).
“When we go to foreclosure, it’s a last ditch effort,” said Stephen Lonergan, Springfield’s treasurer/collector. “We always try to work something out with taxpayers first. Our goal is to keep the person who owns the house in the house. I don’t think anybody chooses not to pay their taxes. But stuff happens — bad things very often happen to good people. If I had to choose between paying my taxes or feeding my kids, I’d feed my kids.”
Worcester, and a third party to which the city sold the debt, foreclosed on and sold a total of 23 homes. The homeowners lost $4.5 million in equity, while owing only $300,000 in taxes, interest, and fees to the city. The average home equity loss was $193,904. Worcester sold two of the homes itself, and for the other 21 homes the city sold off the debt to Tallage Davis, LLC, a Boston-based private investment company.
When asked why the city doesn’t give back the money, Timothy McGourthy, Worcester’s chief financial officer, said, “We have no obligation to do that.” Asked for reasons why some Worcester homeowners might fall behind in paying their tax bill, McGourthy said, “You have to ask them.”
Ed Augustus, who was recently appointed by Gov. Maura Healey to be the first secretary of housing and livable communities, served as the city manager of Worcester during the time period when homeowners there lost the $4.5 million in equity, while only owing $300,000 in taxes.
Augustus, through his spokesperson, declined to comment. Healey’s office offered a statement that “the new Executive Office of Housing and Livable Communities is committed to making our housing system more affordable, accessible, and equitable for all.”
Not all communities seize property for nonpayment of taxes. Somerville, for example, has had delinquent property owners but has not executed a single foreclosure, according to Treasurer Linda Dubuque.
“Somerville is in a fiscally sound position that allows avoiding foreclosing on homeowners, which is so important because it’s usually the elderly or people with health issues who are not able to pay their taxes,” Dubuque said in a statement. “Our approach allows people in truly difficult circumstances to stay in their home until either they choose to sell or live out their life in their home and then their heirs sell. Upon that sale, the taxes are paid and the owner or their heirs inherit the remaining equity. The city would rather wait to collect the owed taxes.”
CHALLENGE EXPECTED
The law as it stands in Massachusetts permits a “classic unconstitutional taking,” according to the state attorney general’s office. Because the state extinguishes the right of homeowners to any of their equity after lien proceedings start, “this central feature of the Massachusetts tax foreclosure process simply cannot be distinguished from the one the Supreme Court struck down,” Patrick Moore, first assistant attorney general, told the Joint Committee on Revenue in June.
Moore expects a decision striking down the law will come soon. “Whether the land court, or another court where this issue has been raised, will rule on the issue in days, weeks, or a few months ahead is not clear, but the Tyler decision ensures that that time is very near,” he said.
Some individual settlements have already been reached with homeowners in Massachusetts. Deborah Foss, a 67-year-old New Bedford woman whose home was foreclosed on by Tallage, ultimately received an $85,000 settlement offer that concluded the case without striking down the law but did make up for “a substantial amount of her lost equity,” according to the Pacific Legal Foundation.
Carmen Rodriguez sued Worcester and Tallage after they foreclosed on her home over about $2,600 in tax debt, leading to the sale of her home worth about $300,000, only about $4,000 of which went to the city. Tallage agreed this year to dismiss Rodriguez’s eviction and vacate the tax foreclosure that was before the land court, said Greater Boston Legal Services senior attorney Todd Kaplan.
A case still pending before a bankruptcy judge asks the court to declare the tax foreclosure process unconstitutional, Kaplan said. Lawyers were already arguing that the tax foreclosure process conflicted with bankruptcy laws, and “when Tyler came down, it added additional urgency to the whole process of dismantling the tax foreclosure process,” Kaplan said.
Attorney General Andrea Campbell said in a statement that the Supreme Court decision presents an opportunity for legislators to reform the law in a way that “maximizes equity, emphasizes fairness, and closes the racial wealth gap.”
VIEW FROM THE HILL
Lawmakers let loose a flurry of bills over the past few sessions, all trying to address the lien takings, with outrage pouring in from both chambers and both parties. But no law has emerged yet.
Senate Minority Leader Bruce Tarr, a Gloucester Republican, proposed straightforwardly that “any amount in excess of the amount owed to the municipality for sale of property shall be remitted back to the former owner of the said property.”
Sen. Cynthia Creem of Newton, whose bill also favors brevity and would ensure that any excess proceeds after taxes and fees be returned to the property owner and their heirs, expressed a sense of urgency before the Revenue Committee in June.
“We should not wait any longer to make this better,” she told the committee. “We should not wait any longer to not have illegal unjust takings. Any delay will result in additional families suffering devastating disproportionate economic loss.”
For the past few sessions, bills seeking to change the state law on tax lien foreclosures have been sent to study – essentially killed.
Several legislators are looking to treat delinquent tax debt the same way as delinquent mortgage payments under state law, where the banks have to give back any excess when the homes are foreclosed on and sold.
Other bills are trying to amend the tax lien foreclosure process itself. Rep. Tram Nguyen has filed bills several times that would require any company that buys a title to provide clear notice to the homeowner and local Council on Aging. The homeowner would have a year to redeem the title (by paying the taxes and interest), up from six months today. The bill would let municipalities offer more flexible repayment plans to individuals trying to catch up on taxes.
A bill filed by Sen. Mark Montigny of New Bedford includes similar language to improve notice requirements, extend the time to pay taxes and interest to keep title to property, and allow for flexible repayment programs. It also states explicitly that if the property is sold at auction, anything “above and beyond reasonable expenses as approved by the land court shall be returned to the former owner.”
Not everyone is on board with overhauling the system.
Twenty small towns, all but two in rural areas, submitted letters in strong opposition to the legislation to the Joint Committee on Revenue in June. The letters all listed 17 reasons for opposing the legislation, among them:
- “Taking away the surplus from municipalities . . . removes a long-standing tax policy that not only motivates property owners to pay their property taxes, but also allows municipalities to use tax foreclosures for municipal benefits (conservation, flood plan management, business development zones, etc.).”
- “The bills effectively reward the bad behavior of delinquent property owners and shifts the financial burdens to the backs of property owners who pay their taxes on a timely basis.”
The letters conclude: “I hope the committee will leave the existing property tax collection laws in its current form as it is working to serve the needs of our community.”
The Massachusetts Municipal Association said in a statement this month that it understands the new urgency sparked by the Supreme Court ruling.
“We support creating a special commission to closely examine the current practice around collection of delinquent property taxes, and ensure that any changes take into account the needs of municipalities and taxpayers,” the association said.
Renee Fernandes, the president of the Massachusetts Collectors and Treasurers Association, said her members are worried about the legislation. “We’re all very anxious what all of this ends up being,” she says in an interview. “It definitely will have an effect on how we do business going forward in the future. We’re all waiting with bated breath.”
Legislators left for their August recess without action on the set of bills, but Moran said she and fellow chair Rep. Mark Cusack of Braintree agreed to move forward with the matter by collecting additional testimony in listening sessions. “We are going to use those listening sessions to actually propose a bill within the committee,” Moran said this month.
Moran made it clear that the Supreme Court decision lit a fire under legislators to advance something. “The urgency is appreciated, as there are lots of folks that are still in the situation where they don’t feel like they have assurances, so we want to be sure that we try to move it as expeditiously as possible,” she said.