Home Equity Theft Gets Legislative Attention

It might seem unthinkable that a government agency, specifically a town’s taxation arm, could callously dispossess a resident of most of their net worth, measured in tens of thousands of dollars, due to an overdue property tax bill of a few thousand dollars. But, that’s standard practice in some Massachusetts municipalities that are now in the crosshairs of the Pacific Legal Foundation – and Beacon Hill.

One of the examples they cite is that of Deborah Foss, a 66-year-old grandmother who lives in New Bedford on a small, fixed income from Social Security. She suffers from several medical conditions, including chronic lymphocytic leukemia, COPD, and neuropathy. Despite these struggles, Deborah cared for her ailing mother for the last 10 years of her life.

Deborah hoped her 2015 purchase of a home would help put her hardships behind her. After her mother died, she used money from the sale of her mother’s house in Quincy, Massachusetts, and her life savings to buy a $168,500, two-unit home in New Bedford.

Deborah moved into the downstairs unit and rented out the upstairs unit to a family member as a new source of income, but the financial struggles soon resumed. The new home needed more repairs than she anticipated, and she could not afford to cover them with her remaining funds. Plus, her tenant stopped paying rent.

When Deborah, with her limited income, could not pay part of her 2016 tax debt, the City of New Bedford initiated a “tax taking,” meaning the debt went on the books and began accruing 16% annual interest, subsequent tax bills, and administrative fees. Eighteen months later, the city sold its tax lien to Tallage Davis, LLC for $9,626—the amount Deborah owed the city.

Tallage is a private investment company that specializes in buying property tax debts. It either collects the amount owing from the homeowner at generous interest rates or—if an owner cannot pay—forecloses on the property and takes ownership, and then sells it for a massive profit.

The company did the latter with Deborah’s home, starting the foreclosure process in the Massachusetts Land Court just nine days after buying the tax lien. The court sent foreclosure notices to Deborah nine months later. However, it took another two months for the certified mail to finally reach her. Deborah pleaded for a 6-to-12-month grace period to sell the property and pay the full debt, but the court rejected her request, foreclosed on the lien in September 2019, and handed absolute title and ownership of Deborah’s home to Tallage.

The property’s market value is $241,600, and Deborah owed only about $30,000. But instead of ordering the company to turn back to Deborah the roughly $210,000 in equity she retained in the home, the Land Court held that Massachusetts law allows the company both to take her home and to keep the equity.

Tallage also secured an eviction judgment against Deborah and in February 2022, as if losing her life savings was not enough, on the heels of a New England snowstorm, Deborah was suddenly homeless.

But Deborah’s devastation turned into determination when she realized she is not alone in losing her home, her hard-earned equity, and her life savings under the state’s predatory tax taking law. Pacific Legal Foundation’s research has revealed that homeowners subjected to tax foreclosure lose 87% of their home equity on average—nearly $260,000 per home. In just one year, municipalities and private investors stole more than $56 million in property equity from Massachusetts residents.

A home’s equity is just as much property as a home itself. It cannot be taken by government without just compensation. Represented free of charge by PLF, Deborah is fighting back with a lawsuit challenging the state’s home equity theft system that preys on its most vulnerable members.

Taking notice of this situation and a similar high-profile taking in the town of Easton, two State Representatives, Jeffrey Roy of Franklin and T ommy Vitolo of Brookline, are proposing new legislation that will prevent municipalities or organizations such as Tallage from stealing home equity. “We introduced H 3053 which would end this egregious practice,” said Roy.

Under the bill, localities and private investors would collect what they are owed, but would not be allowed to take more than what they are due. The bill would require the municipality or any private investor to disburse the proceeds of the home in a manner consistent with traditional mortgage foreclosures, including returning the remaining home equity to the resident. “It would also restore due process protections to ensure a homeowner receives adequate notice about a potential foreclosure and has an opportunity to defend their home in court,” Roy said.

“The current law surrounding tax takings, without these protections, is terribly unfair and needs to end,” Roy added.

In the meantime, the Pacific Legal Foundation-led case, Foss v. City of New Bedford, et al., filed in the Massachusetts Superior Court, is moving ahead.

Pacific Legal Foundation is a national nonprofit legal organization that “defends Americans threatened by government overreach and abuse,” according to the organization’s web site. The organization, which dates back to 1973, has active cases in 34 states plus Washington, D.C. PLF has represented clients in state and federal courts, with 14 victories out of 16 cases litigated at the U.S. Supreme Court.