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New Bedford officials have temporarily given up their most powerful tax collection tool, in order to avoid violating the U.S. Constitution.
They’re waiting for state lawmakers to rewrite Massachusetts’ law on tax foreclosures. Last May, the Supreme Court threw the state into legal limbo when it ruled that a similar tax collection law in Minnesota violated the Fifth Amendment.
Massachusetts law allows tax collectors to keep all the proceeds in a tax foreclosure sale, no matter how little the homeowner owed. A New Bedford Light investigation found that dozens of New Bedford property owners have lost their houses — and all the remaining equity in them — over tax debts that were just a fraction of the property’s value. Critics call the practice “home equity theft.”
A grandmother who had spent her life savings to buy a $168,500 duplex in the South End lost her home over a tax debt of $9,516. In some cases, a private company that bought tax debts from the city foreclosed on properties to collect debts under $1,000. The company then sold those properties for as much as $212,000.
‘Home equity theft’ — in New Bedford and across Massachusetts
How one Boston real estate investment firm earned millions by foreclosing on property tax debts it purchased from cities and towns
Massachusetts laws governing tax foreclosures are now unconstitutional, the state’s attorney general has said.
John Taxiarchos, New Bedford’s interim treasurer, says the city isn’t filing any new tax foreclosures in land court until the state Legislature passes a new law that allows homeowners to keep their leftover equity.
“We want to see how it’s going to shake out before we move forward with any type of auction on properties,” he said. “We don’t want to make any mistakes on that end.”
State Sen. Mark Montigny, who represents New Bedford, has been filing legislation to ban “home equity theft” since 2018. His bill has been sitting in committee for too long, he said in a statement to The Light.
“It’s unacceptable and embarrassing when several other states have enacted appropriate measures to amend their laws and our Attorney General has urged for an immediate remedy,” he said.
Montigny called on cities, towns, and private tax collection companies to return excess equity they collected through foreclosures. Some lawsuits brought by homeowners who lost properties to tax foreclosure could pave the way for others to demand their money back.
Bills that would ban “home equity theft” have languished in the Legislature for years. None have made it out of committee in the 10 months since the Supreme Court decision, even as the state’s top legal officials have called for change.
The road to banning “Home equity theft”
“The time is now to fix this statute,” said First Assistant Attorney General Pat Moore at a Joint Committee on Revenue meeting in June.
In a statement last summer, Massachusetts Land Court officials said that tax collectors filing foreclosure cases must provide just compensation to property owners to avoid violating the Constitution. But current state law doesn’t lay out a process to return the excess equity, which is why New Bedford officials are taking a wait-and-see approach.
The Legislature’s revenue committee is reviewing four bills that would protect property owners’ equity. Lawmakers plan to write new legislation based on those bills and feedback from municipal and state leaders, according to a staff member familiar with the committee’s deliberations. Lawmakers have made progress in the last few weeks, the staff member added.
Tallage, the private property tax collection company that has bought tax debts from New Bedford in the past, declined to comment.
The executive director and president of the Massachusetts Collectors and Treasurers Association did not respond to requests for comment.
Massachusetts is one of only nine states that still allows tax collectors to keep excess equity. That number has been dwindling: Nebraska, Maine, South Dakota, and Idaho have updated their tax foreclosure laws since the Supreme Court ruling.
“Massachusetts is certainly not alone in having failed to address the situation, but I think they are lagging behind generally,” said Joshua Polk, a lawyer for Pacific Legal Foundation, a libertarian public interest law firm that represented the Minnesota homeowner in last year’s Supreme Court case.
Pacific Legal Foundation has represented multiple Massachusetts homeowners who lost their properties to tax foreclosure, including a woman from New Bedford. But the cases resulted in settlements, not court decisions with the force of law.
The foundation is now representing a Massachusetts alpaca farmer who lost his property to the town of Bolton. Polk was aware of two similar cases brought by homeowners in Springfield and Greenfield. A Worcester woman has also sought to enforce the ruling in bankruptcy court.
The alpaca farmer case could eventually set a precedent providing a clear avenue for homeowners to reclaim their equity after a foreclosure, he said.
New Bedford officials hope that the Legislature will set a statute of limitations on lawsuits brought by homeowners seeking to reclaim their equity from past foreclosures.
“If we foreclosed on your house 15 years ago, I don’t think you should be able to come back now and be like, ‘I want my equity on that,’” said Sherie Pinzino, the city’s tax title management analyst.
The city hasn’t filed a new tax foreclosure case in nearly a decade. It sold tax debts to Tallage from 2016 to 2019, and had a moratorium on aggressive tax collections during the pandemic. Last year the city announced it would no longer auction tax debts to outside firms.
A New Bedford Light investigation found that Tallage bought $4.4 million in tax debt from the city over those four years. The company foreclosed on about one in every 10 debts it bought, bringing $6.2 million in revenue, plus an unknown amount of interest — state law allows tax collectors to charge 16% on these debts.
This year, the city put liens on about 950 properties with back taxes, a legal step that comes before a court filing for foreclosure. In a typical year, the city sends out 1,500 to 1,800 liens. Officials say they’re doing more outreach, and that has led more property owners to sign up for repayment agreements.
Taxiarchos, the interim treasurer, doesn’t expect the delay in foreclosure filings to cause any major revenue problems for the city because of his department’s success in setting up repayment agreements. Still, he said the Legislature needs to clarify the law before his office can go back to normal operations.
“We’d like closure on this,” he said.
Polk urged the Massachusetts Legislature to put a new law on the books quickly.
“The longer this goes on, the more difficult a situation municipalities will find themselves in,” he said. “They’re sort of in limbo right now.”
Email Grace Ferguson at gferguson@newbedfordlight.org
It is theft, and disgusting. Shame on Massachusetts for having this law on the books in the first place!
A very similar law is Civil Forfeiture. I think it started with the good intentions of seizing the fruits of organized crime. But the concept has been expanded in places to include any and all crimes (even things like traffic laws). That’s because it’s so profitable for cities and towns and doesn’t even require a conviction. The police can take a person’s car away for driving down the wrong street and send them walking when they get out of the police station jail.