Court ruling turns up heat on Mass. tax lien law that costs homeowners their equity

A new ruling from the Hampden Superior Court in Springfield has found that a Massachusetts law permitting cities and towns to take homes or other real estate from tax delinquent owners – including their equity – is unconstitutional.

The ruling echoes a similar conclusion from the U.S. Supreme Court last year.

The Hampden decision marks the first time a Massachusetts court has declared unconstitutional this longstanding practice by dozens of cities and towns in the state. Housing attorneys and lawmakers told GBH News it could spur more action by state courts and the legislature to abolish the practice.

Last year the U.S. Supreme Court decided unanimously that tax lien foreclosures that also take property owners’ equity — beyond the tax bills they owe — are unconstitutional. And many critics say Massachusetts has acted too slowly to bring its laws in line with nation’s highest court’s decision.

“This has to be resolved and has to be resolved quickly,” said Todd Kaplan, a senior housing attorney at Greater Boston Legal Services who also represented a Springfield homeowner in the Hampden Superior Court case. “The legislature needs to act to fix the system. And the only fix that will be constitutional is one that returns the equity in the home to the homeowner.”

Several bills are pending in the state legislature that would end the practice.

For decades, dozens of Massachusetts cities and towns have foreclosed on properties that were behind in local taxes or even water and sewer bills and took all the proceeds from those foreclosures – including any equity that property owners had. Many municipalities also sold off tax liens to private investors, who then foreclosed on homeowners who fell behind in tax bills and could resell the property and keep all of the proceeds.

“It is an immense windfall for the towns,” said Ralph D. Clifford, a longtime critic and former professor at the University of Massachusetts School of Law. “It’s a sort of underground tax that goes to the towns because if they keep the entire equity, they are making money rather than simply collecting what they're owed.”

A 2019 report by the GBH News Center for Investigative Reporting found cities such as Worcester making millions of dollars from selling tax liens to investors.

Sen. Mark Montigny (D-New Bedford) said lawmakers have dragged their heels for too many years and failed to address what he calls “equity theft” sanctioned by state laws.

“We have millions and millions and millions of dollars almost exclusively stolen from vulnerable people,” Montigny said Monday. “It's outrageous. There is no excuse ever for taking equity from a vulnerable person. I also call out any mayor or any municipal official who has stolen the equity over the last ten years to return it now.”

Montigny said he is prepared to demand the legislature take up his bill in the coming weeks, which would not only abolish the equity-taking law but also cut the interest rate that municipal tax collectors can assess from 16 percent to 5 percent. The legislation would allow for more manageable repayment plans for local taxpayers delinquent in their bills.

Kaplan said he expects to see a slew of claims for repayment of equity lost in foreclosure cases.

“Small communities, large communities and tax lien buyers are really going to have to brace for huge liability,” he said.

The Massachusetts Collectors and Treasurers Association did not respond to GBH News request for comment. And neither did Daniel Hill, an attorney for Tallage, LLC, the largest tax lien investor in the state. Tallage principal William P. Cowin donated more than $17,000 to lawmakers in the state over the last five years. Hill contributed another $7,500 to politicians over the same period, according to data from the Massachusetts Office of Campaign and Political Finance.

Montigny said such special interests have helped delay action in the State House.