Massachusetts Land Court Finds For Owners in Property Tax Lien Foreclosure Proceeding

In a newly released opinion, the Massachusetts Land Court discussed the harsh consequences of property tax lien foreclosure proceedings. In Tallage LLC v. Meaney, the homeowners’ unpaid water and sewer bills became a tax debt, since those utilities are provided by the city. The city auctions its tax receivables to private companies, which then pursue the taxpayers for the lien amounts and may obtain a right of redemption on a property tax lien. In Tallage, the company that purchased the property owners’ tax liens initiated tax lien foreclosure proceedings against the owners.

Procedurally, in tax foreclosure cases, the lienholder files an action in the Land Court to foreclose the right of redemption. If no voluntary agreement is made as to payment of a redemption amount, the court will determine the amount and date by which it must be paid. If the taxpayer fails to comply with the court’s order, the right of redemption is foreclosed and a judgment is entered. However, the judgment may be vacated if the party moves the court to do so within one year, and the court finds that, after careful consideration, this is required to accomplish justice.

It is important to note that there are key differences separating tax foreclosure cases from mortgage and other kinds of foreclosures. First, since the interest rate accrues at 14% from the time the taxes are due until the sale occurs, and 16% thereafter, small tax bills can rapidly become significant. In addition, unlike mortgage foreclosures or judgment liens where the remaining sale proceeds (minus the obligation amount) are returned to the property owner, when the right of redemption on a property tax lien is foreclosed, the lienholder acquires “absolute title” to the property, eliminating all of the property owner’s interest and equity. Remarkably, the lienholder receives the entire amount of the proceeds once the foreclosure is final, regardless of the amount owned on the lien. In Tallage, the owners’ property had a fair market value in excess of $270,000. The plaintiff acquired the tax title to the property for only $1,052—a windfall that did not go unnoticed by the court.

The Massachusetts Land Court recognized that most homeowners who have difficulty paying their taxes, including the Tallage defendants, are those undergoing serious life events, and that inequitable results can occur with the complete loss of home equity after redemption rights are foreclosed. The court also acknowledged that unlike municipalities, which conduct such foreclosures with a large measure of discretion, private companies such as the Tallage plaintiff have no incentive to cooperate with homeowners and operate with different goals and incentives, including one to maximize return on investment. Finally, the court cited that the only legitimate interest of a city in seeking to foreclose rights of redemption is to obtain collection of taxes and other costs plus interest. Once the owner comes forward with sufficient funds to redeem the property, the purpose is fulfilled. In Tallage, the property owners had made an offer of redemption, which was rejected by the private company. Considering these factors, the court made the right decision in vacating the foreclosure judgment.

At Pulgini & Norton, our skilled attorneys provide legal advice to homeowners, buyers, and sellers in a variety of real estate matters throughout Massachusetts. We are proud to bring years of experience and personalized attention to each case, from home closings and inspections to title insurance. To discuss your real estate needs with one of our attorneys, call (781) 843-2200 or contact us online.

More Blog Posts:

Massachusetts Court Ruling Questions Whether Wells Fargo Satisfied Procedural Requirements in Foreclosure Case, Massachusetts Real Estate Lawyer Blog, published July 17, 2015

Massachusetts Supreme Judicial Court Finds in Favor of Homeowners, Voids Foreclosure Sale, Massachusetts Real Estate Lawyer Blog, published July 24, 2015

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