A new study suggests that homeowners in Massachusetts have lost nearly $100 million in equity over the last six years. The great home equity heist spans across thirty cities, according to the Pacific Legal Foundation, a California group committed to legal action on behalf of citizens.
The primary reason for these profound losses isn't due to nationwide policies. They're specific to Massachusetts, and twelve other states. The main culprit is the Massachusetts policy that states homeowners can be stripped of their home's equity in the case of tax lien foreclosures. Massachusetts, along with eleven other states, participate in this policy which paves the way for homeowners to lose everything down to the last bit of wealth they've built in owning property.
It can begin small, a simple tax debt perhaps, that can eventually expand into foreclosure. Upon the sale of the home, Massachusetts (or a third party assisting in the foreclosure) is entitled to keep all of the equity accrued without providing the homeowner any of the excess home sale value. In an extreme example, owing $50,000 in tax debts means losing your home valued at $200,000 entirely – a $150,000 profit for the state.
The Pacific Legal Foundation's report, titled Violating the Spirit of America: Home Equity Theft in Massachusetts, shows that 408 homeowners were victims in a six-year time span, making up the whopping $97 million figure. According to Pacific Legal Foundation, "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."
Pacific Legal Foundation argues the policy is unconstitutional because it violates a clause in the Fifth Amendment that states private property shall not be taken for public use without just compensation. As such, the Pacific Legal Foundation argues that the Commonwealth of Massachusetts and the eleven other states are participating in “home equity theft”.
While foreclosing on properties to cover debts is not uncommon in the US, the act of keeping the excess after debts are covered is not a regular practice. The benefits of owning a home and any upgrades made to it, have disappeared over debts as small as $2,000, according to the report’s authors. While residents may suspect that government cannot profit off of the sale of property used to cover liens, debts, and taxes, the policy has unjustly hurt those that can't afford to make tax payments and ultimately buries residents deeper in debt by stripping them of their biggest investment.
Several Massachusetts residents have already experienced this situation and the report highlights the lives and experiences of Neil and Mark Mucciaccio of Easton. The brothers, along with Mark's family, a wife, daughter, and two grandkids, live in the home they inherited from their parents. In 2016 when Mark fell behind on taxes, the City of Easton placed a lien on the property. Soon thereafter, Easton sold that tax lien to a third-party company investment firm, Tallage, who foreclosed on the home in 2019. In a matter of years, the Mucciaccios would lose their home and all equity along with it. The losses, combining the home itself and the land, are estimated to be $245,000.
According to Todd Kaplan with Greater Boston Legal Services, "[the problem] affects almost exclusively low-income people and elders who are house rich and cash poor. When we see the numbers of people who actually lost their homes, those are people that are vulnerable ... and that's why they lost their homes."
Some Massachusetts municipalities repeatedly pass liens onto third parties who subsequently chase down homeowners and attempt to foreclose when debts remain unsatisfied.
The Pacific Legal Foundation disputes the legality of this policy because private property is being seized without just compensation. The group has recently backed House Bill 3053, a potential remedy which would create a universal policy of returning excess funds to the homeowner after all debts have been paid. The bill requires an adjudication by the Massachusetts Land Court before any municipality may take a property for failure to pay taxes, and is being considered by the Joint Committee on Revenue.
For more information, please visit the Pacific Legal Foundation