Report: Massachusetts Homeowners Lose Millions in Home Equity Theft Racket

Massachusetts is one of a dozen states that still practice home equity theft: When a homeowner owes a tax debt, no matter how small, the local government can force a foreclosure and keep the full selling price of the home—leaving the homeowner with nothing.

A new Pacific Legal Foundation report, Violating the Spirit of America: Home Equity Theft in Massachusetts, revealed that 254 Massachusetts homeowners lost a collective $60 million in home equity between January 2014 and June 2020 when municipalities foreclosed and sold their homes over tax debts as small as $2,004.02.

Homeowners of another 154 homes lost $37 million after municipalities sold their tax liens to private investment group Tallage, which foreclosed and sold the homes while keeping the value over and above what was owed.

On average, in the 31 municipalities covered in PLF’s report, Massachusetts homeowners subjected to tax foreclosure lost 87% of their home equity—nearly $260,000 per home.

In most states, homeowners who lose their properties in tax foreclosures can keep whatever is left from the sale of their home after all debts are satisfied. But in Massachusetts and 11 other states, homeowners are denied that right—and for many families, their stolen home equity was the only savings or inheritance they had.

Government can take property to collect unpaid taxes, but taking more than it is owed is legalized home equity theft. Home equity is private property. Delinquent property tax forfeiture neither wipes out equity nor relieves government’s obligation to pay just compensation.

“[T]he Massachusetts system likely hits vulnerable people the hardest,” as our new report demonstrates.

Take, for example, the case of the Mucciaccio brothers: Mark and Neil are in their 50s and have struggled with unemployment and chronic health issues. They inherited their Easton, Massachusetts, home from their late parents and live there together with Mark’s wife, daughter, and two grandchildren. When Mark fell behind on property taxes in 2016, Easton placed a tax lien on the property and promptly sold the lien to Tallage for only $4,355.

Tallage foreclosed on the home in 2019 and eventually sent someone to the property to change the locks. By that time the Mucciaccios’ tax debt, which was accruing interest at an annual rate of 16%, was roughly $30,000. Their house itself wasn’t worth much—about $60,000—but it stood on valuable land and had no mortgage. All told, the Mucciaccios’ property was worth $276,500.

The Mucciaccio brothers were about to lose their home and about $245,000 in property equity over a $30,000 debt.

But they were lucky: After PLF filed a lawsuit in state court, Tallage agreed to allow the brothers to repay their debt and reclaim the title to their home.

Other families featured in PLF’s report were not as fortunate. The Calkins family lost their Ware, Massachusetts, home over a missed $2,004.02 tax payment. The home had been in their family for 70 years. Three months after they were evicted, Lawrence Calkins succumbed to chronic pulmonary disease and passed away. His daughter Laura was left homeless.

“Unfortunately, home equity theft is lucrative in Massachusetts for some localities and private investors,” PLF’s report says, “and it’ll take more than Laura [Calkins] bravely sharing her story to stand up to the powers that benefit from it.”

PLF has identified municipalities, like New Bedford and Worcester, that aggressively seize home equity in tax foreclosures or regularly sell tax liens to private investment firms. These municipalities are violating the Takings Clauses of both the United States and Massachusetts Constitutions, which prohibit the taking of private property without just compensation.

How can future home equity theft be prevented in Massachusetts?

One possible remedy is legislative reform: State legislators are currently considering House Bill 3053, which would require tax lienholders to auction foreclosed property to the highest bidder and, after satisfying the tax debt and any other liens on the property, return excess proceeds to the homeowner. If the bill passes, a family that is subject to tax foreclosure would still lose their home—but they would keep their home equity.

Whether or not the bill passes, Massachusetts municipalities should reform their own processes at an administrative level: PLF’s report outlines several steps towns and cities should take to prevent families from being blindsided with life-changing consequences after falling behind on property taxes.

If Massachusetts doesn’t reform this process on its own, it should be prepared for more lawsuits from citizens whose hard-earned equity is unjustly taken.

As the report argues: “It’s time for Massachusetts to ensure that former homeowners can salvage their lifesavings through a fair and reasonable tax foreclosure process.”