Prompted by concerns about existing Massachusetts laws regarding the enforcement of foreclosure on homeowners with outstanding municipal tax arrears, the BBA has joined other advocates, chief among them Greater Boston Legal Services and the National Consumer Law Center, in endorsing reforms to the state law on these “tax-lien foreclosures”.
Under current law, tax-lien foreclosures can lead to outcomes in which a homeowner loses not only their real property but all the equity they have built up—regardless of the amount of debt actually owed. Municipalities can sell the outstanding debt to third parties, who have an incentive to take advantage of that windfall provision but no incentive to consider the effect of foreclosure on the community as a whole.
Meanwhile, rising property values and property-tax rates often combine to make it difficult for homeowners to stay current on their tax bills—especially for those on low or fixed incomes, including the elderly, the disabled, or anyone who is house-rich and cash-poor. Some seniors may not be aware of the deferrals and abatements available to them by law, while others with cognitive disabilities or surviving spouses may have trouble understanding their obligations in the first place. These problems are frequently compounded by inadequate notice of the possibility of being foreclosed upon.
Regardless of the cause, once a homeowner falls behind, punishing statutory interest rates of 16% and late fees work to put a potential solution further out of reach. And even when homeowners seek an agreement to pay off their back taxes, they are faced with a statutory minimum initial payment of at least 25% of the debt, with additional requirements imposed by some municipalities. The law actually provides that debtors can potentially face arrest.
Tenants in housing that has been taken by tax foreclosure find themselves with little recourse—and often little warning, since they may not even be aware of the owners’ non-payment of taxes, the foreclosure that results, or the change in ownership. Their first inkling of a problem may come in the form of an eviction notice. And unlike tenants after a mortgage foreclosure, they have no legal protections after tax foreclosures.
Private third-party buyers of municipal tax liens can reap a windfall profit by foreclosing, evicting the former owner (or tenant) and re-selling the property. In some instances, the underlying equity to be gained may be great enough that a debt-buyer is willing to pay even more than the value of the debt. And the homeowner loses not only a residence but all of the equity they may have spent decades building.
All of this can lead to homelessness and financial ruin, one family at a time, with a cascading destabilizing effect on vulnerable communities. The small number of third-party buyers responsible for the bulk of tax-debt purchases have been accused of unscrupulous practices in the course of pushing properties toward foreclosure.
These issues have caught the attention of some in the news media, most prominently the New England Center for Investigative Reporting, which has produced a series of reports in conjunction with WGBH-FM and with the Boston Globe. The Boston-based National Consumer Law Center has advocated reforms in this area and in 2012 issued a report entitled “The Other Foreclosure Crisis: Property Tax Lien Sales” that recommended, inter alia, reducing the interest rate applied to tax debt, strengthening notice requirements and enhancing the notice provided, and encouraging more use of tax deferral and abatement plans.
In response, legislation has been filed in Massachusetts by State Representatives John Mahoney and Tram Nguyen, and State Senator Nick Collins—each bill addressing different aspects of the problem, sometimes in overlapping ways. Greater Boston Legal Services has been at the forefront of efforts to enact legislation.
The BBA’s Real Estate Law Section reviewed the existing bills, with an eye toward pulling out key provisions suitable for potential BBA endorsement and packaging those into a set of guidelines for legislation. The BBA’s Delivery of Legal Services Section voted to endorse these principles as well. No other section offered substantive comments.
Last week, the BBA Council voted in endorse those guidelines, which read as follows:
The Boston Bar Association is concerned about existing Massachusetts laws regarding the enforcement of foreclosure on homeowners with outstanding tax arrears. Under current law, these “tax-lien foreclosures” can lead to outcomes in which a homeowner loses not only their real property but all of the equity they have built up—regardless of the amount of debt actually owed. Municipalities can sell the outstanding debt to third parties, who have an incentive to take advantage of that windfall provision but no incentive to consider the effect of foreclosure on the community as a whole.
The BBA recognizes that municipalities are entitled to collect all taxes due and believes they should have the tools to work out repayment agreements to help fairly achieve that result. We encourage municipalities to make use of the existing flexibility provided in G.L. c. 62A as part of this process. We remain concerned nevertheless about certain vulnerable homeowners, who may face their own particular challenges in confronting tax arrears—especially given the statutory default interest rate of 16%—and may be especially prone to misunderstanding the penalties and outcomes that may result. Finally, the BBA is concerned that current law does not adequately consider the impact on tenants who live in properties subject to tax-lien foreclosure proceedings.
Therefore, the BBA concludes that any legislation to reform the way in which tax-lien foreclosures are handled should:
• Eliminate the windfall to private purchasers of tax titles upon foreclosure, as well as any incentive to pursue that option in place of a potentially workable repayment agreement.
• Allow municipalities to adopt repayment plans with more flexibility in repaying back taxes and allow for greater reduction in accrued interest, especially for low-income and elderly individuals who are house-rich but cash-poor.
• Provide for more effective notices of tax deficiencies and foreclosures, including delivery to the local council on aging and more understandable language explaining what steps homeowners can take to address tax arrearages and what the consequences of non-payment may be, including foreclosure and loss of equity.
• Require a reasonable attempt to notify tenants whose property may be subject to tax foreclosure.
• Eliminate arrest as a possible consequence of tax delinquency.
• Require that third parties who purchase tax liens be licensed as debt collectors.
We will now seek opportunities to advocate for these changes to the Legislature, working alongside other advocates in this area, including GBLS and NCLC, to advocate for legislation that would enact them. The related bills filed this session have not yet had a legislative hearing.
Government Relations Director
Boston Bar Association