NEW BEDFORD — Advocates who had fought for years against so-called “home equity theft” celebrated when the U.S. Supreme Court declared the practice unconstitutional last month. But the ruling has triggered changes that are only beginning in Massachusetts.

The state Legislature will likely need to rewrite its laws, or tax collectors could risk violating the Constitution if they follow the same foreclosure laws they’ve used for decades. And those tax collectors could now face multimillion-dollar lawsuits brought by former property owners who want their home equity back.

The current Massachusetts law allows tax collectors to foreclose on properties with overdue taxes and keep all of the proceeds in the sale, even if the value of the property far exceeds the debt — that’s why some call it “home equity theft.”

But the Supreme Court ruled on May 25th that local governments can’t collect more than they are owed in tax foreclosures. All nine justices sided with Geraldine Tyler, a Minnesota woman who sued Hennepin County after it foreclosed on her condo. The county sold the condo for $40,000 and kept all the proceeds, even though Tyler only owed $15,000 in taxes, interest, and fees.

“The way that the Minnesota law works and the way that the Massachusetts law works is identical,” said Ralph Clifford, a law professor at the University of Massachusetts Dartmouth who has studied tax foreclosures. “The message for Massachusetts is its way of doing tax collection on tax deeds is unconstitutional.”

Clifford authored a 2017 study that estimated Massachusetts property owners lose a total of $56 million in home equity through this process every year. In New Bedford, dozens of 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, a New Bedford Light investigation found.

The court ruled that those foreclosures violate the Fifth Amendment of the U.S. Constitution, which bars the government from taking private property without fair compensation to the owner. That means states must have some process for property owners to get their remaining equity back in a tax foreclosure. There’s no such process in Massachusetts right now, so tax collectors can’t pursue foreclosure under current state laws, Clifford said.

When asked about the ruling’s impact on tax collection in New Bedford, a city spokesperson released a statement from Mayor Jon Mitchell that criticized state legislators for setting high interest rates on late taxes decades ago.

“As important as it is that everyone pays their fair share in taxes, the fact that the legislature has mandated a usurious interest rate on unpaid municipal property taxes is downright unfair, and it has forced many taxpayers who have fallen on tough times into a financial hole too deep to climb out of,” Mitchell stated. “Although the Supreme Court’s decision will not fundamentally change the ordinary tax foreclosure process, I hope that the decision will prompt legislators to fix a problem primarily of their own creation.”

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When pressed for a clearer answer on any changes to city policies in the meantime, the spokesperson said the city hasn’t filed a foreclosure case since 2016 — that’s when it began auctioning its tax debts to a private tax collector. The last auction was in 2020 and there’s a moratorium on future auctions.

Although New Bedford has few tax foreclosure cases in court right now, there are thousands of open cases brought by other cities, towns, and private tax collectors. The best way to get them out of limbo, Clifford said, is to rewrite the law.

“The smart way is to pass a bill that recognizes we need to change the way we do tax collection to make it consistent with constitutional requirements,” he said.

There are already bills in the legislature to do just that. State Sen. Mark Montigny filed a tax foreclosure reform bill in 2019 and state Reps. Tommy Vitolo and Jeffrey Roy filed a similar bill in 2021, but neither has ever come to a vote.

The bills would return any excess equity in a tax foreclosure sale back to the former property owner. They would also make the notices sent to delinquent taxpayers more likely to reach them and easier to understand. All three lawmakers said they hoped the legislature would pass the reforms this session.

“We definitely need to push ahead with the statute,” Roy said. “Regardless of what the Tyler case says, we still need legislation in Massachusetts to right this wrong.”

Both bills were referred to the Joint Committee on Revenue. The lawmakers said they hadn’t heard from the committee on the bills’ statuses since the Supreme Court decision, but they planned to work with the committee in the coming months.

“I’m very hopeful that we will see, and we are asking for, an immediate hearing,” Montigny said.

“There’s no reason whatsoever that we should not immediately move forward and end this charade.”


Montigny added that if the committee didn’t move quickly, he would try attaching his bill to a budget measure.

Tallage, a private tax collector that has bought debts from New Bedford and dozens of other communities, said in a statement that they expect the Land Court to change its procedures and have judges order property sales before foreclosure, which would preserve homeowners’ equity.

But a spokesperson for the court did not mention any policy changes in response to The Light’s questions, saying in a statement that the court “continues to assess the impact of the Tyler decision on Massachusetts law and practice.” The spokesperson said the court plays a limited role in tax foreclosures compared to tax collectors, and it doesn’t decide what happens to the property after foreclosure. 

While a new law or policy would help property owners in future foreclosures, the Supreme Court ruling is also expected to open the door for lawsuits brought by people who were foreclosed on in the past.

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It’s very likely people will start to bring these lawsuits, Clifford said. And if they’re brought as class action cases, tax collectors might have to pay out millions of dollars to former property owners.

“Massachusetts municipalities and these private entities out there are on the hook, potentially, for returning substantial amounts of money to the taxpayers,” he said. “It just takes one, saying, ‘I’m suing for myself and everyone else in my position.’”

Meanwhile, Montigny has called on cities and towns to proactively pay restitution to homeowners who lost equity through tax foreclosures, saying they could use pandemic aid like American Rescue Plan funds to cover the cost.

“All these towns and cities have received tremendous state and federal resources,” he said. “It’s a good time for them to do a moral check and decide in what cases home equity was stolen.”

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