In several states, local governments are authorized to take beyond what is owed in property taxes when a homeowner falls behind. Known as home equity theft, this practice robs homeowners of the wealth they’ve built over a lifetime. In fact, it’s happening right here in Massachusetts, despite a recent Supreme Court ruling holding the practice unconstitutional.
According to a recent study by Pacific Legal Foundation, homeowners in Massachusetts lose an average of 82% of their equity to this tax foreclosure policy. For the 315 Massachusetts homes in Pacific Legal Foundation’s dataset, households lost a total of $48 million, with the average homeowner losing more than 15 times the debt they owed.
Based on laws still on the books despite a recent Supreme Court ruling, Massachusetts cities can keep a tax claim — or sell to a private debt collector — when a homeowner falls behind on their property taxes, no matter how small the debt. The owner of that debt may then foreclose and obtain a deed to the property and keep all profits from its sale.
Building equity through property ownership is one of the most cherished property rights protected by law. Yet in Massachusetts and 11 additional states, plus Washington, DC, this right is at risk. What’s more, nine other states provide loopholes to allow home equity theft in more limited instances.
Following June’s National Homeownership Month, it’s clear now more than ever that leaders across these states must eradicate these unjust laws that undermine the value of homeownership and the financial benefits that come with it.
The current process has particularly harmed Massachusetts’ most vulnerable, like Deborah Foss, a 66-year-old grandmother from New Bedford, who lives on a fixed income and suffers from several medical conditions. When she couldn’t pay part of her 2016 tax debt of $3,748, the interest quickly accrued, and the city eventually sold its tax lien to a debt collector.
Foss’s debt ballooned to $30,000 after interest and penalties, on her property valued at roughly $241,600. When the property sold, investors kept the surplus equity — roughly $210,000 — and Foss began living out of her car.
A similar incident happened to Neil and Mark Mucciaccio, brothers from Easton who lost their family home and more than $245,000 in equity when family medical troubles led to financial hardships and, ultimately, property tax delinquency.
If a homeowner falls behind on their property taxes, they should repay taxes and fees but should not have to worry about the government seizing all the equity they’ve worked so hard to build.
From 2014 to 2021, at least 8,950 homes and more than $860 million in savings were lost to home equity theft across the country. It’s vital that going forward, our leaders do better to prevent these numbers from making an upward climb, and consumers agree.
According to a recent survey from the American Property Owners Alliance, 74% of respondents view home equity theft as unfair and 77% of respondents agree that state law should be changed to allow collection of only the amount owed, and nothing more.
On May 25, the Supreme Court ruled 9-0 in favor of a 94-year-old Minnesota woman who fell victim to home equity theft — a landmark victory that will allow homeowners to challenge their state’s home equity theft laws.
Massachusetts should follow Nebraska’s lead, where legislators saw the writing on the wall after the win and passed into law Legislative Bill 727, which ended home equity theft in the state. New York has also taken a proactive approach, imposing a moratorium on tax foreclosures until the Legislature has time to negotiate the details of comprehensive home equity theft reform.
In the House in Massachusetts is bill H.2937, legislation that would protect the equity of homeowners facing foreclosures. Additionally, in the Senate is a similar piece of legislation, bill S.921, as well as bill S.1876, which would protect homeowners from unfair tax lien practices.
Leaders in the Commonwealth are wise to introduce these policies. Now, they must ensure their passage in this legislative session.
By ending home equity theft in Massachusetts and everywhere it occurs, homeowners will no longer have to fear that a small tax debt could deprive them of their life’s savings.
Colin Allen serves as the first executive director of the American Property Owners Alliance — a nonpartisan, nonprofit organization created to protect and support property owners.
Jim Manley is the state legal policy deputy director at Pacific Legal Foundation, a nonprofit legal organization.